INTRODUCTION

The amount of political risk associated with international project financings in unstable developing countries causes project participants to seek efficient and unbiased forms of dispute resolution. Delays in the resolution of project disputes can negatively affect project economics, through lower project revenues and higher project expenses.

Multiple project documents, multiple parties, and potentially inconsistent treatment of the same or similar contract provisions can lead to unacceptable results. For example, two arbitration panels, determining whether a force majeure has occurred under two separate, but related, project contracts, might lead to inconsistent results. In transnational project financings, dispute resolution planning is particularly important because of conflicting laws, multiple forums with an interest in hearing a dispute, and varying tolerance for arbitration and enforcement of arbitration awards.

Within a project financing, these diverse parties have different tolerances for the acceptability of arbitration for dispute resolution. Although project sponsors and contractors in international project financings consider arbitration preferable to litigation for dispute resolution, project lenders and insurers often prefer litigation.

ON WHETHER TO LITIGATE OR TO ARBITRATE

There is general agreement on the benefits and disadvantages of litigation compared with arbitration. These are summarized below.

Advantages of Arbitration

The commonly cited advantages to arbitration are quick, efficient resolution of disputes; lower legal fees; minimal pre-hearing discovery and motions; neutrality of the forum is permitted, which is particularly attractive in a multinational dispute, where any participant may be reluctant to resolve disputes in one participant's home country; arbitrators can be selected who have expertise over highly technical and complicated subject matter; one party cannot force dispute resolution into a local court; flexible and informal proceedings; and the privacy and confidentiality of proceedings.