STEP 1: Choosing arbitration and selecting the rules of established independent arbitration institutions

If the Parties decide to select arbitration as the dispute resolution mechanism for the PPP Contract, it is recommended that institutional (administered) arbitration is chosen. While there is a form of ad hoc (non-administered) arbitration, this is not the recommended approach for the reasons highlighted below.

(1) Institutional Arbitration. Instead of drafting an overly long arbitration clause containing bespoke procedural rules, it is preferable for the Parties to incorporate the procedural rules of an established independent arbitration institution. For consistency, all dispute resolution processes under the PPP Contract and the related Project Agreements should apply the same institution's rules. The PPP Contract drafting will therefore vary to some extent according to the institutional rules selected.

Reference to the rules of the arbitral institution usually incorporates the assistance of an institution, which may act as an appointing authority (if required) during the constitution of the tribunal, deal with the payment of arbitrators' fees during the proceedings and make arrangements for the respective hearings and issuance of the award.

A variety of institutional rules and of institutions are available for commercial arbitration. The rules of the ICC ("ICC Rules") are frequently used58. Other common options include the London Court of International Arbitration ("LCIA") rules, the Hong Kong International Arbitration Centre rules or the Singapore International Arbitration Centre rules. See Section 8.3, Sample Drafting 8, Clause (12), Option Two. See Section 8.3, Sample Drafting 8, Clause (12), Option 2.

In addition, there is a dispute settlement mechanism specifically designed for disputes between foreign private investors and States (or their agencies or subdivisions) created by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the "ICSID Convention"). ICSID arbitration is available when the home State of the Private Partner and the host State of the project differ in nationality, and both States are party to the ICSID Convention (currently 153 States). As with the incorporation of any other institutional arbitration clause, both the Contracting Authority (the host State or its agency or subdivision) and the Private Partner may resort to ICSID arbitration for breach of the obligations set forth in the PPP Contract.

While recourse to ICSID arbitration provides some comfort to the Parties as to the enforceability of awards, it might not always be an option for a PPP Contract. This is because the ICSID Convention establishes essential jurisdictional conditions for access to ICSID arbitration and the Parties would need to include a fall back clause in the PPP Contract in case a dispute is determined not to meet these requirements This may render the drafting of the dispute resolution provision more complex. ICSID arbitration may also be viewed as more slow-moving than standard commercial arbitration. Nevertheless, Contracting Authorities should be aware of the possibility of claims under this regime.

(2) Ad Hoc arbitration. If the Parties incorporate an arbitration clause in their PPP Contract without referring to the arbitration rules of a particular arbitral institution, and without expressly agreeing to have the assistance of an arbitral institution to administer the proceedings, they will be agreeing to a non-administered or ad hoc arbitration. In those cases, the Parties would need to include a detailed procedure for the conduct of the proceedings, including, for example, the process for the selection of the tribunal deciding the case, its powers and the issuance of awards (see Step 3). This is not advisable as the Parties may omit to agree on crucial elements of the arbitral process which can result in procedural stalemate once the dispute arises.

The Parties may also choose a particular set of arbitration rules that do not necessarily include the selection of an arbitral institution that will assist in the administration of the case. This is the case, for example, if the PPP Contract incorporates a reference to arbitration under the rules of the United Nations Commission on International Trade Law ("UNCITRAL Rules"). The UNCITRAL Rules are often used in commercial disputes involving a public and a private entity, and are also commonly incorporated in international investment agreements (see Schedule 2). There is no institution specialized in administering UNCITRAL arbitrations, but they constitute an intermediate step to pure ad hoc arbitration, in the sense that they already include provisions governing each step of the arbitration process. Many institutions, such as the PermanentCourt of Arbitration, the LCIA, the International Chamber of Commerce ("ICC"), the International Centre for Settlement of Investment Disputes ("ICSID"), the American Arbitration Association and the Stockholm Chamber of Commerce are available to provide institutional support for proceedings under the UNCITRAL Rules, should the Parties agree to such institutional support. It is advisable for such agreement to be explicit in the arbitration clause in the PPP Contract, although the Parties can in theory agree this once a dispute has arisen.

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58 For illustration purposes, Section 8.3, Sample Drafting 8, Clause (12), Option 2 onwards is based on a choice of the ICC Rules. This drafting is for guidance only and will need review/adaptation when using an alternative institution's rules.