Offshore Energy Mediation

Disputes in the offshore energy field are as diverse as the nature of the industry itself. The energy sector includes oil, natural gas, liquefied natural gas, traditional power, nuclear and renewables . In respect to renewables the transition to offshore wind projects creates new frontiers in energy production. In a sense the issues arise out what may be considered extreme construction and engineering. Issues which expose parties to significant disputes include issues of technical complexity, capital intensity, price volatility and government policy and regulation. These factors constantly shift, but never more so than now as the impact of the energy transition begins to be felt.

It is important for clients to have a mediator who understands the industry, their businesses, and the environment in which they operate. While there are many mediators there are few are few actual energy specialists with relevant experience. Disputes are inevitably driven by economics. At its most fundamental a contractor needs to make a profit or at least cover its costs. An Owner needs to have its revenue producing assets at least possible cost to ensure the on time on cost planned return on investment. The two agendas often conflict where unforeseen circumstances require changes to design and execution involving both time and cost consequences. Many disputes are caused by immature design or a failure to implement a design freeze early. Misalignment between budgets and progress payments can equally affect a project as can imprecise contract terms giving rise to differences in interpretation. Whatever the cause both parties are best served by working together to resolve issues as they arise.

The reasons giving rise to conflict in offshore construction and engineering contracts are manifold and arise out of complex factual and technical matrices different in each case. By the time your dispute reaches arbitration or the door of the court, substantial resources sounding in costs approaching millions of dollars will have been invested in construction claims consultants, geologists, consulting engineers, technical experts, and lawyers not to mention the invisible cost of internal resources which could otherwise be deployed in profitable enterprise. The arbitration or court process will produce a winner and a loser having decided issues obvious over many years in a matter of weeks. Squeezing 3 to 5 years of construction history into a 2 week hearing requires an extreme form of natural selection necessarily producing an edited version of events which may or may not be compelling. International conflict in cross border transactions often reflects changing market conditions.

Where expectation of economic returns is not met the other party will often be blamed. The mediator’s job is to understand the position and interest of each party and lead them to a conclusion which works for both. The mediator will not impose his own solution but rather explore possibilities both obvious and those which may be more obscure. The mediator will get each party to an empathetic understanding of the other’s position with a view to negotiating the historical impasse. He will do this by challenging each party’s respective position and reality test arguments put forward for realistic possibility of success and credibility. The mediator may also get each party to stand in the other’s shoes and ask what they would do in the position the other party finds itself in. An emotionally intelligent understanding leads to empathy and joint problem solving.

Your mediator will also seek to foster an understanding that the arbitration or court process will produce a winner and a loser having decided issues obvious over many years in a matter of weeks. Squeezing several years of commercial dealings into a 2 week hearing requires an extreme form of natural selection necessarily producing an edited version of events which may or may not be compelling.

There is another way. Mediation is said to produce a win-win with both parties resolving their competing agendas in a way which allows then to return to the business of making commercial returns from their business without the distraction of litigating history. I prefer to think of the solution as being more an acceptable lose-lose where each party is content to compromise within its comfort zone to produce a settlement freeing both parties from the chains of litigation.

As corporate counsel confronted by many expensive disputes over a 40 year career I have often asked the following question when making main board presentations on complex disputes. Explaining to members of the board that this dispute will cost at least a couple of million dollars in the current year with the cost is likely to increase steeply towards the trial of the issues unless a settlement can be reached. “Do you want me to give this money to the lawyers or can I use these resources to find an acceptable settlement?”. Mediation attempts to resolve a dispute in a similar way. It is based on collaborative working.