Australia Arbitration Virtual Conference

There has been a wave of recent disputes in Australia with significant increases in energy and natural resources related (particularly renewables and gas price arbitrations), infrastructure, construction, and mining cases. This session will address numerous macro trends, including:

• Increase in the number of Investor – State disputes with parties relying on the Bilateral Investment Treaties for dispute resolution
• Fluctuating regulatory and judicial responses by the government to evolving macroeconomic threats
• Unique characteristics of dispute redressal mechanisms in Australia and COVID-19’s impact on accelerating change
• Emergence of the memorial approach opposed to the pleadings approach
• Increase in how the discovery process is used in arbitration
• Lastly, there has been a tremendous increase in the use of expert witnesses in arbitration especially incases where complex economic, financial and valuation issues are contested to present his/her expertopinion without having been a witness to any occurrence relating to the substantiative matter.

Mining industry has many intrinsic elements which increase the complexity and variability of the sector’s risk landscape. Mining investments are always capital intensive, long term and heavily regulated and invariably involve state or state-owned entities. They key arbitration issues in the mining and minerals space include disputes with government, commonly arising out of licensing or regulatory changes (including taxation or tariffs), as well as direct or indirect expropriation of assets. Further, fluctuating regulatory and judicial responses by the government to evolving macroeconomic threats such as climate change, ESG issues and the COVID-19 pandemic also result in increased arbitrations. The risk of contractual disputes arise in every transaction but increase where miners are now engaging with new contractual counterparties and markets. Mines are also exposed to legal and regulatory risks due to climate change. As significant contributors of greenhouse gasses, they are under increasing social, political and regulatory pressure to disclose emissions, divest from carbon-intensive assets and transition to lower-emission and more sustainable operations leading to an increased need of arbitration. The cross-border nature of many mining investments, combined with the involvement of emerging or challenging jurisdictions and state or state-owned counterparties has resulted in an increase in the inclusion of an international commercial arbitration clause in mining agreements.

Australia is in the midst of an infrastructure boom. The country has more than A$185 billion (US$132 billion) worth of public infrastructure projects underway with a forecast to reach A$275 billion (US$196 billion) in 2023, according to the Deloitte Access Economics Investment Monitor. Given the increased appetite of both federal and state governments to invest in infrastructure, it is inevitable that disputes will arise when unforeseen risks occur. COVID-19 has caused disruption in the investment process, but this seems unlikely to reverse the general trend towards increased construction activity and resultant disputes. The Australia construction industry is subject to extensive laws and regulations. This includes various security of payment laws across the Australian states and territories which provide an expedited adjudication process for the interim resolution of payment disputes under construction contracts. However, in June 2021, Western Australia introduced new security of payment laws. The Building and Construction Industry (Security of Payment) Act 2021 (WA) does not strictly follow security of payment legislation in other jurisdictions and is unique. It introduces novel concepts which will be the subject of debate in the coming years.

Other key fundamental areas where disputes arise in infrastructure or construction contracts include performance of construction contracts. Time is important in every construction project, yet the most frequent disputes arise out of a) delays in completion, b) complexity of documents along with a long lifecycle of a construction project, c) contractual interpretation of key provisions, and inconsistent provisions in the documents forming the entire contract, d) disputes relating to bank guarantees, conditional and unconditional nature of these guarantees.

Climate change policies are reshaping the global energy industry. Australian energy focus is also transitioning from hydrocarbons to renewable energy sources. Like every other energy and infrastructure project, renewable energy projects also usually involve many cross-border dispute related issues due to their heavy upfront investment, complex regulatory issues, and valuable intellectual property. As climate change becomes a salient issue, energy markets will be subject to more stringent regulation. Arbitration will be critical to responding to these changes as many parties will need to reconsider their contractual arrangements. A change in domestic legislation may also make previous contractual agreements unviable. The energy sector’s radical shift towards renewables means businesses that fail to proactively respond to changing policy conditions may find themselves unable to fulfil their contractual obligations resulting in a rise in disputes. The disputes realized in the energy/resources sector of arbitration vary greatly from joint venture, M&A and financing deals to regulatory disputes and further to licensing, intellectual property and technology. There has been a recent rise of enforcement proceedings for Investor-State’s arbitral awards in Australia highlighting energy disputes.

There has been a wave of recent disputes in Australia with significant increases in energy and natural resources related (particularly renewables and gas price arbitrations), infrastructure, construction, and mining cases. This session will address numerous macro trends, including:

• Increase in the number of Investor – State disputes with parties relying on the Bilateral Investment Treaties for dispute resolution
• Fluctuating regulatory and judicial responses by the government to evolving macroeconomic threats
• Unique characteristics of dispute redressal mechanisms in Australia and COVID-19’s impact on accelerating change
• Emergence of the memorial approach opposed to the pleadings approach
• Increase in how the discovery process is used in arbitration
• Lastly, there has been a tremendous increase in the use of expert witnesses in arbitration especially incases where complex economic, financial and valuation issues are contested to present his/her expertopinion without having been a witness to any occurrence relating to the substantiative matter.

There was a stream of technology and IP cases in Australia in the year 2021 –ranging from patent term extensions which are a mechanism by which patents held by pharmaceutical companies can be extended to recognize the time that it takes to research and develop a new drug and get it to market, to a series of reforms aimed at simplifying and clarifying the regulatory landscape around products like health apps and fitness devices. There is likely to be an increase in patent litigation in this space. There has also been an increase in trade mark infringement cases highlighting that piggybacking on a well established brand is a significant legal risk and tribunals will consider if the branding is contravening the consumer law and misleading its consumers.

Key sources of conflict in joint venture and shareholder disputes include failure to achieve the business plan agreed at investment stage, promoters failing to provide an exit to investors, promoters failing to honourthe put option or challenge it, a lack of Corporate Governance / Transparency in use of funds, Legal versus Economic Owner of the intellectual property or the asset, etc. Dispute over valuation takes centrestage in case of joint venture and shareholder disputes. Typical drivers of shareholder disputes are a lacklustreeconomy, disappointing financial results and major corporate reorganisation. The global COVID-19 pandemic may generate a surge in shareholder disputes, as a difficult business climate intersects with individual corporate struggles to manage unprecedented circumstances. As a result, companies may face claims arising from COVID-19, navigate onerous contracts or otherwise adjust their operations accordingly. The COVID-19 outbreak has seen some early shareholder suits regarding alleged company ‘misstatements’ related to COVID-19. Rapid drops in stock price give rise to many result-oriented shareholder lawsuits.

Australia has negotiated ISDS provisions over the past three decades to provide protection for Australian companies investing abroad. ISDS is essential to promote investor confidence and protect against sovereign or political risk. A foreign investor in Australia, or an Australian investing overseas, can use ISDS to seek compensation for certain breaches of a country’s investment obligations. Australia has ISDS provisions in 10 FTAs and 15 Investment Protection and Promotion Agreements (IPPAs). Australia’s IPPA with India was unilaterally terminated by India on 23 March 2017. Australia agreed to terminate its IPPAs with Mexico, Vietnam and Peru subject to transitional arrangements. Australia also agreed to terminate its IPPAs with Hong Kong and Indonesia, with no transitional arrangements. In this session, the panelists will discuss how Australian-based companies have used ISDS in proceedings against other countries to protect their investments overseas and how is ISDS different from other forms of dispute resolution.