The benefits of including an arbitration clause in wind energy contracts

Maria Eduarda Clezar Hardessem^[1]

Arbitration is the judgment of the dispute by an impartial third party, chosen by the parties. It is a heterocompositional conflict resolution method and some of its main characteristics are expediency and expertise.

The wind energy market is complex, involves robust investments and long-lasting projects. The demand for renewable energy is growing worldwide, which reinforces the relevance of the study of the subject, since the impacts of these projects are wide-ranging, involving several political and economic agents. In view of the above, the aim is to understand the potential benefits of the inclusion of an arbitration clause in wind energy contracts.

 Arbitration is an institute widely used around the world and globalization has enhanced its relevance. From a legal point of view, regarding the relations between different nations, there are several factors that must be analyzed. First, there is the issue of which will be the competent jurisdiction to judge the case – if the contract does not  express regarding jurisdiction, this may be the subject of extensive discussion. Once the matter of jurisdiction is overcome, it is necessary to consider the time and investment in an eventual judicial process, going through all the bureaucratic stages of each legal system.

On the other hand, when we analyze the possibility of including an arbitration clause in the contract, there is a possibility of mitigating the negative impacts of a judicial proceeding. The existence of such a clause result in savings for the parties, since it only remains to define the procedures to initiate the arbitration procedure, avoiding discussions about competence and jurisdiction.

Regarding wind energy, it is imperative to highlight its relevance at a global level. Not only because of the constant and growing demand for energy, but also because of the analysis of the impacts of its generation. Constant climate change reinforces the urgency and relevance of the subject. According to a publication by the Special Advisory Office for Social Communication of the Ministry of Mines and Energy^[2] of the federal government, on energy transition:

“Currently, when we talk about energy transition, we are highlighting the change from one energy source to another in a more sustainable way, that is, a matrix that reduces greenhouse gas emissions. In addition, the energy transition has been pointed out as one of the great pillars for the economic and social growth of countries, in a fair and inclusive way.” (freely translated)

        Wind energy can be an ally to environmental protection, as an alternative for the generation of renewable energy, due to its high electric potential and low environmental impact. The biggest benefit to the environment consists in the non-emission of carbon dioxide. In addition, wind farms can be implemented dynamically. In Brazil, there is a positive movement of harmonization of agriculture with wind energy generation, with projects that reconcile both services in the same space.

As an example, three relevant characteristics in wind energy contracts are: a) high investment cost; b) long execution time; c) economic and political interests. As for the first point, it is justified due to the value of the equipment and the structure of the wind turbines. With reference to the second, the complexity from the preparation of the project, its approval by the regulatory agencies and the effective construction is emphasized. Finally, these projects are the target of interest of various agents, whether political or economic, considering their high impact on society. In view of these elements, it is possible that the most diverse conflicts may arise.

Furthermore, it is common for wind projects to have the participation of foreign investment, which reinforces the relevance of arbitration as an alternative to resolve conflicts. Thus, in an eventual dispute, the parties could benefit from arbitration for several reasons, among which the following stand out: a) the arbitrator’s expertise, in view of the complexity of the subject; b) expediency of the arbitration process, which impacts on financial results for the parties; c) avoid the discussion of the competence of the state jurisdiction to judge such a claim.

The law that regulates arbitration in Brazil is Law No. 9,307 of 1996. It is essential to highlight that the choice of arbitration by the parties must be made expressly, never tacitly. It can be carried out at the time of the constitution of the contract, through the arbitration clause, or later, by the parties signing an arbitration agreement when the dispute arises. On the subject, article 4 of Law No. 9,307 provides that:

“Article 4 – The arbitration clause is the agreement by which the parties to a contract undertake to submit to arbitration the disputes that may arise in relation to such contract.

Paragraph 1 – The arbitration clause must be stipulated in writing and may be inserted in the contract itself or in a separate document that refers to it.” (freely translated)

A key element of arbitration is the freedom of the parties, since they renounce state jurisdiction to deal with the matter privately. Thus, they have discretion to choose the procedure they wish to adopt, the applicable law, the chamber in which the conflict will be resolved (or opt for an ad hoc procedure) and the arbitrator or arbitrators. It should be noted that the arbitral judgement has the same effects as a court judgement, they both form judicial enforcement titles.

A common question is whether it is possible to refer proceedings that deal with administrative law to arbitration. The use of arbitration to resolve disputes involving the Public Administration is supported by national legislation, consolidated through normative changes introduced by Federal Law No. 13,129/2015, which reformulated Federal Law No. 9,307/1996. Since then, there has been a clear provision in the legislation that allows the utilization of arbitration as a method to resolve conflicts over available property rights involving the Public Administration. Paragraph 1 of Article 1 of the Arbitration Law provides legal authorization, stating: “The direct and indirect public administration may use arbitration to settle conflicts related to disposable property rights”.

In the theoretical scope, the topic is still a matter of debate. Dr. Ricardo Marcondes Martins, in chapter I of the book “Public Law and Arbitration: The Emerging Challenges of Private Conflict Resolution in the State”, organized by Dr. Rafael Valim and Dr. Walfrido Warde^[3], defends the unconstitutionality of the utilization of arbitration in contracts involving the public administration, warning about the possible distortion of public interests in the face of economic interests of autonomous agents.

In the same work mentioned above, in chapter II, Dr. Fernando Mendes discusses the reasons why he understands that arbitration can act as an ally of the public administration, since it brings legal certainty to the parties, especially when dealing with contracts with foreign agents, opposing the arguments of the previous chapter. About the work of Dr. Fernando Mendes, we transcribe the excerpt below (emphasis added):

“In this context, in which the Brazilian State needs, in addition to consolidating its role as a regulator of the economy, to resume that of inducing economic growth, it will be increasingly important that the rules of the game are clear so that it allows the creation of a business environment that provides a minimum of predictability and legal certainty for the contracts to be signed,  as a necessary policy to attract investments.” (freely translated)

        There is a doctrinal conflict on the subject. Still, it is worth noting that the law explicitly allows the utilization of arbitration in cases involving the Public Administration and disposable property rights. Regarding the definition of disposable patrimonial right within the scope of public administration, Dr. Guilherme Carvalho, in a work published by Conjur^[4], stated that:

“When the rule states that the property right of the Public Administration is available, for logical reason the Administration may dispose of it, negotiating with the other party, notably, for the purposes of public procurement, with the contractor, until an agreement is reached that is convenient for both parties. The literalness of the normative text does not open the opportunity for any other interpretation to the contrary” (freely translated).

When analyzing a wind energy project, even the ones involving the public administration, any controversy can be resolved through arbitration, if it deals with available property rights. As an example, we could mention a dispute over the payment of financial compensation or royalties arising from the exploitation of public lands for the installation of wind farms. In these cases, issues related to lease agreements or concessions for the use of public lands for the development of wind energy projects could be submitted to arbitration for resolution.

In conclusion, the parties may benefit from the existence of an arbitration clause in wind energy contracts, in view of the advantages provided by arbitration as a dispute resolution method.

 

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