8.2.2.1 Local courts - A Contracting Authority may prefer to select its local courts as the forum for the resolution of any disputes under the PPP Contract. This selection may be made for a variety of reasons including familiarity, compatibility with any concession/PPP legislation, and because the PPP Contract is governed by local law. The costs of litigating before local courts may also be much lower than before certain "offshore" courts or the costs involved in an international arbitration. See Section 8.3, Sample Drafting 8, Clause (12) Option 1.
8.2.2.2 Offshore courts - In some situations, however, Private Partners may be reluctant to agree to have disputes determined by local courts. For example, they may be concerned that the courts in the Contracting Authority's country are (or might become) unreliable, potentially more favourable to the local parties/the Contracting Authority, inefficient and prone to significant delays when a speedy resolution is needed. In these circumstances, Private Partners may push for the inclusion of an external (i.e. "offshore") jurisdiction (or choice of court) provision in the PPP Contract and seek to select a court or courts with a reputation for resolving complex international disputes in a fair and predictable manner. Offshore courts may be the preferred choice for Private Partners even where the PPP Contract is governed by a different (i.e. local) law. Courts in certain jurisdictions regularly determine commercial disputes arising under contracts governed by different laws (e.g. the English courts often determine disputes arising under foreign (non-English) law and do so by hearing expert evidence on that foreign law although this can increase costs). See Section 8.3, Sample Drafting 8, Clause (12) Option 1.
Offshore court litigation may be preferred as the dispute resolution mechanism for Private Partners if they perceive particular courts as being transparent, efficient and with a judiciary consisting of highly regarded commercial lawyers with experience of disputes under PPP Contracts. Further reasons for selecting offshore courts may be the possibility of obtaining injunctive relief from those courts or the ability to obtain "summary" judgment (the early determination of a dispute without a full hearing). It is a procedure available in some courts but is less common in arbitrations.
From the Contracting Authority's perspective, even if offshore courts might not be its preferred option, there may be circumstances where this option needs to be considered as a necessary compromise in order to ensure the PPP Project is bankable. See Section E, PPP Contracts in Context.
8.2.2.3 Arbitration - Most commonly, Private Partners may suggest arbitration as a dispute resolution mechanism. Arbitration is a contractually agreed method of dispute resolution that is an alternative to litigation before the courts. Broadly, the parties agree that one or three individual arbitrators will determine their dispute rather than a court. See Section 8.3, Sample Drafting 8, Clause (12) Option 2.
Arbitration may also be selected if there is a desire to keep the dispute confidential. Unlike court proceedings, arbitration proceedings often take place in private (but not always and the approach varies depending on the jurisdiction and any institutional rules). Private Partners concerned about the enforceability of any decision made in respect of a dispute under the PPP Contract may seek to include an arbitration clause rather than a court (litigation) clause because arbitration awards tend to be more widely enforceable than court judgments. Arbitration can, however, be expensive and sometimes as time-consuming as court proceedings. However, the Parties can include provisions in their arbitration clause for summary judgment or expedited procedures and certain institutional rules also include provisions in this regard. The Parties have to pay for the arbitrators' time and may also have to pay for an institution's administrative costs. See Section 8.2.3.
8.2.2.4 Local limitations on forum selection - Before selecting a foreign court or choosing an offshore arbitration as the dispute resolution mechanism in any PPP Contract, it is important to establish that, under all applicable laws, the Contracting Authority is able to agree to refer disputes to a foreign court or be subject to international arbitration (related to this it is also important to establish it can agree to be subject to a "foreign" law). For example, a Contracting Authority may be required under local laws relating to concession arrangements to refer all disputes relating to a PPP Project to the local courts (and/or to contract only under local law).
There may also be general prohibitions or limitations under local law in relation to a Contracting Authority's ability to agree to an offshore jurisdiction clause or foreign seated arbitration clause (or agree to a foreign law). For example, under local law sovereign entities may need specific waivers and approvals to agree contractually to arbitrate offshore, or to select a foreign jurisdiction clause and/or to contract under foreign laws. It will also be important to establish that under local law the Contracting Authority can contractually agree to waive immunity (see Section 8.2.6). Specific permissions may be required and certain formalities may need to be followed. Issues of capacity and authority may arise in this regard.
These are important points to establish at the outset of negotiations. Private Partners may require local law opinions to address these issues.
8.2.2.5 General considerations - Given the long term nature of the PPP Contract, it can be in the Parties' interests to have a dispute resolution process which supports their long term relationship. Generally, a dispute resolution provision in a PPP Contract should also include a clause imposing a time limited obligation to attempt to resolve a dispute informally (amicably) in the first instance. There are various alternative dispute resolution options which are discussed further below. See Sections 8.2.4 and 8.2.5.
The relative merits of arbitration against litigation before a particular court or courts will need to be assessed carefully for each project. If the Parties intend to instead choose an offshore jurisdiction clause, the drafting of such a clause is generally more straightforward than the drafting of an arbitration clause, which tends to be more bespoke. In all cases, the selection of a forum must be clear and unambiguous.