SCHOOL OF SOCIAL SCIENCES

CENTRE FOR ENERGY, PETROLEUM AND MINERAL LAW AND

POLICY –CEPMLP-

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Section 1 To be completed by Student:

ACADEMIC YEAR: 2019/2020
SEMESTER: 2.2
STUDENT ID: 180019660
MODULE CODE: CP52059
ESSAY QUESTION: As one of the parties (all of which are from different states) to a long-
term agreement for the International, ex-ship sale of LNG from a liquefaction plant in the
Middle East/Africa region to a re-gasification plant in Japan, what would you see as the
relevant considerations in relation to the negotiation of an appropriate process for the
resolution of disputes and the enforcement of such resolution.
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 THE ESSAY QUESTION

As one of the parties (all of which are from different states) to a long-term agreement
for the International, ex-ship sale of LNG from a liquefaction plant in the Middle
East/Africa region to a re-gasification plant in Japan, what would you see as the
relevant considerations in relation to the negotiation of an appropriate process for the
resolution of disputes and the enforcement of such resolution.

WORD COUNT 3339

PRESENTED TO PROF. PAUL GRIFFINS.

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 TABLE OF CONTENTS

1. INTRODUCTION ………………………………………………………………...4

2. CAUSES OF DISPUTES IN A LONG-TERM LNG EX- SHIP SALE AND

PURCHASE AGREEMENT ……………………………………………………….5

3. NEGOTIATING A DISPUTE RESOLUTION PROCESS…………………….6

4. THE SUITABILITY OF VARIOUS DISPUTE RESOLUTION PROCESSES TO

INTERNATIONAL LONG-TERM LNG SALE AND PURCHASE AGREEMETNTS
DISPUTES.
4.1 The types of disputes resolution processes………………………………….8
4.2 The enforcement mechanism………………………………………………...9

5. CONCLUSION …………………………………………………………………….10

LIST OF REFERENCES ……………………………………………………….....11

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 1. INTRODUCTION

The LNG sale and purchase Business is an International Business as indicated in the question.
The participants in the business are from different countries. The process begins with
exploration, discovery, development and production of natural gas. It is this natural gas that is
liquefied into liquefied natural gas (LNG) at the liquefaction plant. The LNG is then loaded
into the ship at the loading port for transportation into the regasification terminal. In an ex ship
arrangement which is contemplated in the question, it is the seller who ships the LNG to the
unloading port, which is usually the agreed port nearest the regasification terminal.
Parties to the above arrangements enter into an International LNG sale and purchase agreement
to regulate their conduct in the business. In the negotiating the many clauses in the agreement
the parties find themselves in situations where they must provide in the agreement, their
preferred process for dispute resolution in an event the disputes arise from the agreement.
The chart below indicates the value chain for LNG sale (delivery ex- ship (DES)

Gas liquefaction
Gas producer
Plant
Natural Gas Sale agreement Middle East/ Africa Region
(where the producer is not same as liquefier)

LNG Sale and Purchase Agreement (delivery E-x ship)

LNG buyer at
regasification plant
Japan

This paper will look at the relevant considerations that will guide the parties International ex-
ship LNG Agreement from Middle East/ Africa Region as illustrated above in selecting the
appropriate processes to resolve their disputes. In doing so the writer will first examine the
potential causes of dispute in the LNG sale and purchase agreement. Thereafter the essay will
examine relevant consideration that will determine the appropriate dispute resolution process.
Lastly the author analyzes the available dispute resolution processes to determine their
suitability as per the consideration outlined and the enforcement mechanism for such
mechanism before making the conclusion.

2. CAUSES OF DISPUTES IN THE LONG-TERM LNG EX- SHIP SALE AND

PURCHASE AGREMEMENT

The primary need for the entry into a long-term agreement in International LNG sale and
purchases business is allow parties provide protection against the risks involved in the business.
Long term LNG sale and purchase agreement seeks to provide commercial certainty and to
make clear the respective rights of the parties.

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 Disputes are likely to arise and will arise in such an agreement and therefore parties should be
keen to prescribe a preferred process for the resolving such disputes. It is however not possible
nor is it very helpful to define every conceivable dispute that might arise in relation to the long-
term LNG sale and purchase agreement, a general indication of the likely causes of dispute is
critical in deciding the appropriate dispute resolution mechanism. Below are some of the likely
cause of the disputes.
a) Price review clauses and price reopener clauses.
Parties are likely to include a clause allowing them to review the prices of the gas upon the
occurrence of events legislated in the contract. However, the identification of the trigger event
and the determination of the price in light changed circumstances, is a potential area for
disputes.
b) Quantities
Disputes are likely to arise from the failure to deliver or under delivery of the agreed amount
of LNG for specified period and the determination of damages for the loss occasioned by such
failure to deliver.
Other areas of dispute under this may include; -
 the obligation of the buyer to take delivery or pay for the minimum amount they not
able take delivery of.
 Failure to take or pay would result into a dispute.
 the failure by seller to deliver the makeup quantities which the buyer paid for under
the take or pay or making the delivery late or
 seller refusal to take delivery of the makeup cargo within a stipulated time.
 measurement of the volumes delivered based on the calibration of the cargo container
vis- a- vis the contract amount.
c) Delivery at the buyer named terminal clause and the diversion clause
This could be controversial especially the calculation of shipping cost as result of the diversion.
This would arise from the operation of two clauses where the agreed cost is based on the named
terminal and buyer exercises his right under the diversion clause, then extra cost of shipping
may be a cause of dispute.
d) The application of Force majeure clause
It is a major cause of disputes more so where parties dispute some events and their causes to
be falling within the contractual force majeure for purposes of claiming relief. For example,
an event like reservoir failure, whether it constitutes a force majeure or not, when it is not
specifically provided in the contract. The burden of proof lies with party seeking rely on the
force majeure to obtain relief to show the connection between the event and its failure to
perform.
Generally, the construction and performance of the agreement would be a cause of the disputes
in long term LNG sale and purchase agreement. As such the disputes in the International LNG
agreement can be of various nature and magnitude. The list provided above only sheds some
light in the direction, it cannot be said to be exhaustive. It is therefore important for parties to
provide for a dispute resolution process in respects of disputes that may arise from the
agreement.

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 3. NEGOTIATING A DISPUTE RESOLUTION PROCESS IN LONG TERM
LNG EX-SHIP SALE AND PURCHASE AGREEMENT.
Thinking about dispute resolution at time of writing the agreement can be night mare to parties
in International LNG sale and purchase agreements. It is like thinking of a divorce at the time
of the marriage. Nevertheless, parties must make provision for disputes resolution in their
agreements the time of executing the same.
Therefore, the mechanism for dispute resolution forms part of the LNG sale and purchase
agreements clauses and is arrived at as result of negotiations just like any other provision in the
agreement.
There are various processes of dispute resolution available to parties in such an agreement.
They will be discussed in detail later in the paper. They include court litigation, mediation,
Arbitration and expert determination. However what parties would finally settle on as suitable
process, depends on the factors that parties would consider relevant for an appropriate process
for resolution of disputes.
In determining the appropriate the process to used in the dispute the resolution the parties to
the agreement before hand will consider the following;
i. The cost of the process
Cost is one of the most critical criteria for any business individual or organization when
assessing what dispute resolution method to adopt. The parties herein are in business and the
aim of any business is to make maximum return on investment. Therefore, parties in this
agreement will be inclined to adopting a dispute resolution process that is cost effective. To
make sure that their investment is not wasted in dispute costs.
ii. Parties involved and their nationality
The type of parties in an agreement would play a big role in determining what process is
appropriate for resolving disputes. Where the agreement is between a state and private
company or between private companies or individuals of different nationality a key factor to
consider is enforcement since there is a possibility of the state claiming state immunity from
suits. where parties have chosen to use the litigation as process for dispute resolution hence
making the enforcement of the judgement impossible. Where private companies are involved
and from different nationalities then this would be factor as no party would be willing to be
subjected to the jurisdiction of another state hence the need for a more neutral process.
Further to this the nationality of the parties determines the governing law. Where an agreement
has International flavor like the one in question the mode of dispute resolution would be based
on need for an application of neutral law in determining the disputes.
iii) Flexibility in procedure
Parties should consider a process that allows them a degree of control. The dispute resolution
method or process should allow the parties to choose the decision makers, the law that they
prefer to be used in the interpretation of the contract, the language and the place of the
conducting the dispute resolution proceedings.
The ability to choose who determines the dispute would allow parties to vouch for the
necessary expertise based on the nature of the dispute and this boost the confidence of the
parties in the process and hence a high likelihood of voluntary compliance with the decision as
it mitigates the adversarial climate between the parties.
iv) Privacy and Confidentiality of the process

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 Participants in LNG sale and purchase business would not like to wash their dirty linen in
public. The parties would prefer to adopt a process that is confidential in nature. A private
dispute resolution mechanism is likely to be appropriate to protect the reputation of parties for
purposes doing future business. This because future business partners would prefer to deal with
parties that have clean business reputation. Disputes can damage reputations once exposed.
v) Neutrality of the process
It is the desire of every party to get justice in an event of dispute. Therefore, the parties in the
agreement herein should consider a dispute resolution process that would be neutral to both
parties. Having come from different states Parties herein would be unwilling to submit to a
particular jurisdiction in an event of a dispute. Therefore, court litigation in one of the party’s
National courts. would be perceived to be biased by the foreign party and will not be seen to
serve the interest of the parties as far the quest for justice is concerned
vi) speed
Time is money is in the world of business. The interest of parties is to have the disputes resolved
as fast as possible to allow a conducive environment for business. Lengthy delays of dispute
resolution will delay supplies of LNG to downstream buyers resulting into extra cost. As such
parties consider a dispute resolution process that takes short time to conclude the determination
of the dispute and allows the business to proceed.

vii) Preservation of Relationships

Long term supply contracts have been said to be based on mutual trust and confidence. It is
therefore important for parties to choose a less adversarial method of dispute resolution that
would preserve the confidence and the implied loyalty between the parties to be able to proceed
with the business post the dispute.
viii) Finality of the Process
Disputes can be an impediment to business. Parties would consider a process of the resolving
a dispute that is comes to end. Therefore, a process that has a limited ground of challenge and
appeal which is likely to bring the process a conclusion within the first resolution and hence
would be most appropriate.
ix)The nature of the Disputes
The nature of dispute is key consideration in deciding what method to adopt. Some disputes
would be very technical in nature and would only require a specialist to determine, by giving
his opinion based on the circumstances and his expertise in the area. The parties should consider
expert determination as the appropriate process for resolution of such a dispute. Alternatively,
parties should adopt a process that allows them to appoint the required expertise to determine
a dispute depending on their nature as and when they arise. This takes us back to a flexible
process.
x) Enforceability of the Resolutions or the Decision
It will would be an exercise in the futility for the parties to spend enormous resources in
pursuing a dispute only to get a resolution which cannot be enforced. It would therefore be
intelligent for parties to consider a process that can lead to a decision which is readily
enforceable. This issue will be revisited later in the paper

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 4. THE SUITABILITY OF VARIOUS DISPUTE RESOLUTION PROCESSES
TO INTERNATIONAL LONG-TERM LNG SALE AND PURCHASE
AGREEMETNTS DISPUTES

4.1 Dispute Resolution Processes

Having looked at the considerations that the parties will have in mind it would be worthwhile
to try and see what process fits the consideration set by the parties hence the most appropriate.
To achieve this a review of the available processes is necessary.
a) Court Litigation
This involves a legal proceeding in a judicial context where the disputing parties submit the
dispute for determination by a court of competent jurisdiction in a country using its laws. This
process is the least appropriate for parties because, Court proceedings are conducted in public
and parties herein would prefer a confidential process.
The Court litigation is lengthy, very expensive and time consuming. Further Courts of a state
may not be neutral to all the parties or may be viewed as being biased toward their citizens.
The judges in a State Courts may not be conversant with the international business aspect of
the dispute. In such circumstances, the parties may end up with a wrong answer to the dispute
leading to appeals and appeals which would completely damages the business relations.
Court judgment are binding. However, there is a challenge on enforcement, more particularly
where one of the parties is a state, it will rely on doctrine of State Immunity from suits which
is a Principle of Customary International Law. Further even when the dispute is between private
parties from different states it would difficult to enforce a judgment from a foreign jurisdiction
in another foreign state.
It is therefore, the authors opinion that Court ligation will be an appropriate mode of dispute
resolution in an International LNG sale and purchases business based on the factors the parties
are likely to be considering.
b) Mediation
This is process where parties seek to resolve a dispute through the assistance of third party, the
mediator who does not decide for parties but works with the disputing parties allowing them to
vent the issues and where possible trying to help them arrive at an amicable solution. This
process is cheap, impartial, expeditious and confidential. It is owned by the parties and it is
appropriate where parties need to preserve relationships. It is however not binding to the parties
and it an only will be appropriate in the agreement at hand if it used with combination of another
binding process. Because parties herein would prefer a binding dispute resolution process.
c) Expert Determination
This is a process where a person who is a specialist in a technical subject of the dispute can
determine the dispute by presenting his opinion. It is confidential and expeditious, and an
impartial process controlled by the parties. However, it is only appropriate where the dispute
is technical in nature hence it limited in scope. It is binding upon the parties as per the contract,
but it is not directly enforceable against a party. If not complied with, the party seeking to
enforce it must institute court proceeding for breach of contract which will be the failure to
comply the expert determination decision. The parties to this agreement can provide for it to
apply in the disputes of a technical nature like determination price in a price review clause.
d) Arbitration

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Arbitration is a mechanism of resolving disputes, where the dispute is determined in a judicial
manner by an independent third party or parties appointed by the disputing parties based on
their expertise or industry knowledge. It can to be said to a private dispute resolution
mechanism. It is very flexible and allows the parties choose the governing law, the seat of
Arbitration, language and appoint the arbitrators.
The process is confidential as the proceeding are conducted privately by parties and do not
ruin or affect the reputation of parties. Preservation of Reputation is a key consideration for
parties in long term LNG business.
Arbitration takes relatively short time compared to litigation and it therefore arguably cheaper.
Hence suitable for any party in business who does want spent a lot of money in disputes.
The fact that parties choose the forum it possible for parties to negotiate and agree on a neutral
forum as parties will not prefer to be heard in the jurisdiction of another party due to the
potential likelihood of bias.
The flexibility alluded above enables the parties to appoint impartial tribunal with experienced
arbitrators and hence there is confidence in the process. This increases likelihood of the
compliance with the resolution by the tribunal.
Arbitration award is bidding and final. It is only subject to challenge on narrowly defined
grounds. This finality and the binding aspect are important characteristics of arbitration. Parties
International LNG sale and purchase business would prefer dispute concluded as first as
possible to allow the business to proceed.
Arbitration award are enforceable across the world making it the most appropriate mode for
the parties in International business to adopt appropriate dispute resolution process.
Enforcement of resolution is considered below.
4.2 Enforcement Mechanism.
As discussed above parties to an International LNG sale and purchase agreement would prefer
a dispute resolution process which would result into the resolution that is readily enforceable.
From the discussion above it has been established that court judgments cannot be enforced
Internationally due to doctrine of the State Immunity from foreign judgments and hence it is
NOT appropriate in resolving International LNG sale and purchase business disputes.
Arbitration award on the other hand can be enforced globally in all countries that have ratified
the of the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral
Award. The 1958 New York Convention imposes an obligation on National Court of the
member states to recognize and enforce arbitration agreements and arbitration award. The
Convention limits the ground on which a National Court may not enforce the award and
therefore generally the award is enforceable in most circumstances.
Japan has ratified this Convention, and around 156 countries including those in Africa and
Middle East countries are parties to the Convention, hence it is likely that parties herein will
be from member states and will enjoy the provision of this convention.
The availability of an award enforcement mechanism makes arbitration a valuable process and
the parties to the International Agreement would look at this as a key consideration as well in
determining as choosing arbitration as the appropriate dispute resolution process.
5. CONCLUSION.
Parties to International Commercial Agreements like the one before hand will try to provide
for dispute resolution mechanism that is effective based on the factors that have been discussed

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above. However, it should be noted that some factors could weigh more than others and to this
end the author opines that enforceability of an award as factor for consideration in negotiating
a dispute resolution process matters most. This is what makes the arbitration a preferred process
although it also meets the other factors set out in this paper.
In the circumstance like this where there are multinational parties in an agreement with the
liquefied natural gas being transported to Japan from Middle East/ Africa region various other
contract may arise like insurance contract, transportation contract with various obligations
based on the different legal system. The flexibility of arbitration would allow the parties to
provide in the arbitration agreement which laws will govern the various contracts. This disputes
flexibility allows disputes to be considered more effectively by the arbitrators who are
experienced and familiar with the business than it would be in ligation in National Courts
Therefore, arbitration will be most preferred method for resolving the International LNG sale
and purchase agreements disputes, involving either states, individuals or companies as parties,
due the fact that its squarely meets the key considerations that would influence the parties to
an International Commercial Agreement in settling on it as their appropriate process.

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 LIST OF REFERENCES

A. PRIMARY SOURCES
1. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (adopted
10 June 1958, entered into force 7 June 1959)

B. SECONDARY SOURCES

I. BOOKS
1. Boyle C, Liquefied Natural Gas: The law and business of LNG. London: Globe Law
and Business. (2006)
2. Born G, International Commercial Arbitration : Commentary and Material: (2nd ed.,
New York: Transnational Publishers, 2001).

3. Roberts P, Petroleum Contracts, English Law and Practice: ( 2nd ed., Oxford
University Press 2013)

4. Picton-Turbervill G, Oil and Gas: A Practical Handbook (Globe Law And Business
2009)

5. Griffin P and Griffin P, Liquefied Natural Gas: The Law and Business of LNG, Second
Edition (Globe Law And Business 2012)

6. Lew JDM, Comparative international commercial arbitration (The Hague London:

Kluwer Law International 2003)

7. Fox WF, International commercial agreements: a primer on drafting, negotiating, and

resolving disputes (4th ed. edn, Alphen aan den Rijn, The Netherlands: Kluwer Law
International 2009)

II. ARTICLES

1. Fabio Solimene LM, 'Dispute resolution in energy-related agreements: how to choose

the right means and draft a proper clause' (2015) International Energy Law Review 108

2. Martin AT, 'Dispute resolution in the international energy sector: an overview' (2011)
4 The Journal of World Energy Law & Business 332
3. Farrell J, 'Expert Determination ' in King R (ed), Dispute resolution in the energy sector:
a practitioner's handbook (London: Globe Law and Business 2012)

4. Isenegger D, 'Dispute Resolution: An Industry Perspective' in King R (ed), Dispute

resolution in the energy sector: a practitioner's handbook (London: Globe Law and
Business 2012)
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 5. Johnston D, 'Peter Roberts, Petroleum Contracts, English Law and Practice' (2014) 7
Journal of World Energy Law and Business 175

D. INTERNT SOURCES
1. Kröll S, The Privatization of Dispute Resolution in International Business
Transactions (International Association of Law Schools) available at
http://www.ialsnet.org/meetings/business/KrollStefan-Germany.pdf accessed 18
July 2019

E. WEBSITES
1. https://www.cambridgescholars.com/download/sample/64025< accessed 15 July 2019

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