Arbitrating Energy Disputes Benefits All Parties Involved

Ingeuneal Gray, vice president of the American Arbitration Association (AAA®), discusses the various reasons arbitration is so effective for disputes in the energy industry.

CCBJ: What are the benefits of arbitration versus litigation in energy disputes?

Ingeuneal Gray: Arbitration allows parties to customize their dispute process. That’s a huge benefit. Arbitration of energy disputes is a fair, efficient, cost-effective process when administered properly. What I mean by that is that both parties have to recognize that this is arbitration – not litigation with an arbitration hat. And most of the time, the parties do understand that.

Arbitration really is a creature of contract, which means that it’s the parties’ process. They design the arbitration process, which has to meet their respective needs, beginning with the drafting of the alternative dispute resolution (ADR) clause and moving forward. It’s a very flexible process.

Throughout arbitration, the parties are also able to select the arbitrators who preside over their case, which is another huge benefit over litigation. Arbitration allows individuals with the necessary expertise in energy to properly rule, as opposed to a judge who handles all types of cases without a specific area of focus. In energy disputes, the parties are able to select an arbitrator who has the necessary skills and qualifications to understand, let’s say, a midstream or downstream issue in an oil and gas case, or a solar issue in an alternative renewable-energy case.

In these instances, additional time doesn’t need to be spent educating a judge or jury about the terminology or nuance of a particular kind of subject matter, as would be necessary in a court case before a judge or jury.

What are some innovative solutions that have resulted from the arbitral process, and how has COVID-19 redefined the practice itself?

With respect to the energy sector, before the COVID-19 pandemic began, oil prices were already plummeting to historic lows. There were already issues there. Then when the pandemic started, projects came to a standstill or were slowed down tremendously or canceled. As a result, oil producing and exporting companies faced a decrease in energy income. In addition to all that, there were lockdowns and travel restrictions, which of course negatively impacted the energy industry. This horrible combination of events created major problems for the energy sector.

So if you would have asked me that question back in March or April of last year – to discuss the impact of the pandemic – I would have said there were major limitations placed on the industry for businesses and individuals. When the pandemic began, in many ways the world stopped and so much was unknown. Energy arbitrations were placed on hold, along with other arbitrations. Parties were requesting continuances. And that was just at the beginning of the pandemic, and here we are a year and a half later and the pandemic isn’t over yet.

In the field of ADR, just as everywhere else, we’ve had to make significant adjustments to the way we conduct arbitrations across the world. However, despite the challenges, we’ve seen incredible adaptability and flexibility, which actually has allowed arbitration to rise to new heights. At some point, everyone realized that this crisis is not going away anytime soon. People had to figure out a way to move forward and work to resolve cases, especially in energy, which is one of those industries that whether the economy is up or down, it doesn’t matter, because there are always going to be disputes in the industry. And with the pandemic creating issues and preventing businesses from fulfilling contracts, there were even more disputes – contract breaches, terminations of contracts, disrupted supply chains due to manufacturing issues, nonperformance, force majeure, and so on.

All that said, the virtual world opened up. Parties began having virtual hearings. At AAA, conducting arbitrations in the virtual world was certainly not a new concept for us, but we knew it was a complex process for many, and we were able to create guides and resources that would be helpful for the parties – something that would help ease them through the virtual hearing experience.

Fast-forward to today, and I think more and more businesses and firms are moving back to the office. But those innovative solutions that resulted from the pandemic have redefined the arbitral practice, as you suggested. Subject to changing circumstances, our AAA hearing rooms are open for in-person hearings again, but virtual hearings are still preferred by many. And I believe some forms of virtual hearings are here to stay. Moving forward, more arbitrations will go back to being held in person. However, I also think that having virtual options will allow for hybrid hearings when necessary, and in instances where the parties or witnesses and our arbitrators are in different states or countries, that can definitely be a benefit. And it’s quite common for energy cases to be in different areas or other states or countries. Having a virtual or hybrid hearing can save on costs for the parties, since you don’t have to worry about travel expenses.

What types of strategies are being employed to bring efficiency to energy arbitrations?

For energy cases, which often involve large amounts in dispute, it’s important that arbitration continues to be a fair, cost-effective process. At AAA, case managers work with the parties to help them find the best solutions for resolving their case in an efficient manner. Our time-tested rules and highly skilled arbitrators keep the process on track. Our energy arbitrators are also well-established, trained and qualified in their specified areas of expertise in the energy sector.

I am proud to say that our energy panel consists of 369 accomplished arbitrators and mediators, including attorneys, formal federal and state judges, and business owners specialized in the industry. We also offer services to keep the process as cost-efficient and effective as possible. For example, we have a streamlined three-arbitrator panel option. In this scenario, when either the rules or the parties’ agreements calls for a panel of three arbitrators, the parties can agree to work with a single arbitrator first, through the preliminary and discovery stages, which helps keep the costs down a great deal. Then the full panel of three arbitrators comes together during the evidentiary hearing phase to issue the award.

We also offer alternative fee-arrangement options, where the arbitrator works with the parties at a fixed or capped rate for their services on the case. That’s another way to streamline the process and keep it cost effective.

When it comes to energy-related contracts, tell us about the importance of having a well-drafted dispute arbitration clause.

It’s important to note that a dispute does not begin with the filing of a demand for arbitration. I think that’s something that sometimes gets lost. It begins with issues in the contract. The less clarity you have in the contract, the more confusion there is when a disagreement or dispute arises. That’s why it’s so important to have an effective arbitration clause. The purpose of the clause is to resolve disputes, not create them. And when disagreements occur over the meaning of something in the clause, it’s often because it failed to address the particular needs of the parties. In energy contracts, there are so many complex issues to navigate. Time and money should not be wasted on the parties trying to figure out the number of arbitrators, the location of the hearing, or even the governing law, or any other issues that could have been easily resolved during the drafting of the contract or by inserting a good arbitration clause. Especially considering that the drafting process is like the honeymoon phase, when everyone gets along.

So, when you’re working out that agreement or working through the contract or figuring out the clause, you really want make sure you have what’s important in there, and that all of the potential issues are figured out. That’s also why the AAA developed ClauseBuilder®, a free online tool to assist individuals, businesses and organizations in drafting a clear and effective
arbitration and mediation clause.

Energy can be a highly specialized industry. How does the AAA ensure that its executives are armed with the appropriate skills and knowledge base?

The AAA has been in existence for almost 100 years. Since 1926, we have administered almost 7 million cases. We’ve seen just about every type of energy dispute you can imagine – and even ones that you can’t. We’ve seen it all. Our expertise in managing energy cases, combined with our rules and well-established panel of energy arbitrators, means we have the knowledge and skills to provide the necessary information, education and resources – from the drafting of the energy arbitration clause to the filing of the demand for arbitration to the issuance of the award.

There has been a heated discussion about on the lack of diversity in various fields within the legal industry. What is the AAA doing to increase diversity and inclusion within the profession?

At AAA, we recognize that everyone should have the same opportunities and operate on an equal playing field, regardless of ethnicity, race or gender. Clients, businesses, government and society as a whole are best served when the legal profession and ADR reflect the communities they serve.

It’s also important that everyone who wants to utilize the services of arbitration is able to find diverse arbitrators. The world is a very diverse place, and that diversity needs to be reflected in the people who make decisions that affect the lives of others. That’s why the AAA is so committed to diversity and inclusion.

What people might not know is that since the 1970s, the AAA has worked to make arbitration and mediation more diverse, specifically in terms of ADR professionals. For example, the AAA co-sponsored the first national women’s arbitrator development program to establish a method of recruiting and training qualified women arbitrators. The first programs to increase women and racially and ethnically diverse arbitrators were in the labor arbitration area, and they included large unions and companies as co-sponsors, along with the AAA and the Federal Mediation and Conciliation Service. And more recently, diversity efforts within the AAA have centered on recruiting diverse panelists of arbitrators and mediators to serve on cases, as well as in our education programs and to represent AAA in publications.

The AAA also has a diversity and inclusion committee, which assists with coordinating initiatives, promoting events, and collaborating with firms and organizations, in order to increase awareness on the benefits of diversity and inclusion. Our Diversity Inclusion Council Committee, which consists of legal and ADR professionals, provides advice and recommendations to the AAA on how to increase the inclusion of women, racially and ethnically diverse individuals, and other individuals and groups that historically have not been included in meaningful participation in the ADR field.

The AAA continues to build coalitions with national and local bar associations and law schools around the country, sponsoring and participating in events to provide training and create opportunities for diverse practitioners. Just to give you an idea of the results of these efforts, at the end of 2020, the active panel consisted of 27 percent women and racially and ethnically diverse individuals, and the number is steadily growing. And 51 percent of our new panel members are diverse.

The AAA also believes in educating and developing the next generation of arbitrators and mediators. One example is the Higginbotham Fellows Program, launched in 2009, which was created to increase diversity and inclusion within the field of ADR by providing training, mentoring and networking opportunities to up and coming diverse ADR professionals.

Another example is the AAA Diverse Student ADR Summit, which provides an in-depth understanding of what it really takes to become a successful arbitrator and/or mediator.

Another initiative I would like to mention is the AAA Contribution to the AAA-ICDR Foundation for Diversity and Inclusion Grants. The fund grants diverse law students and professionals with up to $2,000 of financial assistance towards participation in a degree program or fellowship in alternative dispute resolution or attendance at a well-recognized conference.

Increasing diversity and inclusion is and will remain a top priority at the American Arbitration

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