In OJSC Ukrnafta v. Carpatsky Petroleum Corp., 957 F.3d 487 (5th Cir. 2020), the Fifth Circuit recited a familiar notion: “Arbitration is supposed to keep disputes out of court and ‘increase[] the speed of dispute resolution.’” The Fifth Circuit made this statement in the context of a contract dispute governed by an arbitration agreement that spawned related litigation and a decade-long confirmation process. This case highlights that not all arbitrations are speedy, efficient, and cost-effective. To achieve the intended purposes of arbitration, such provisions should be carefully prepared and the process vigilantly managed.
In 1994, Carpatsky Petroleum Corporation, a Texas company at the time, entered into a Joint Activity Agreement (JAA) with the Ukrainian company OJSC Ukrnafta to develop a gas condensate field in Ukraine. Disputes were to be resolved by arbitration. In 2007, Carpatsky commenced arbitration against Ukrnafta, alleging breach of the JAA. The arbitration was not speedy and did not stay out of court. The arbitral award was issued some three years later in 2010, during which three separate related lawsuits were filed. It took another decade for the arbitral award to be confirmed into a U.S. judgment while execution continues.
Despite the experience of Carpatsky and OJSC Ukrnafta, arbitration can be a quicker, cheaper route than courthouse litigation. As a creature of contract, the process is controlled by the parties. When negotiating an arbitration clause, parties should consider how to maximize the efficiency and minimize the costs of the process. All too often, parties simply agree, usually at the end of the negotiation process, to boilerplate language that may fail the twin goals of efficiency and economy. But parties with bare-bones or boilerplate arbitration clauses need not lose hope. Pay careful consideration to selecting the applicable ruleset and, in the event the clause is exercised, work with the arbitral tribunal to design an efficient and cost-effective process.
Getting the most out of arbitration requires attention to both the drafting of an appropriately tailored ADR provision and the management of the arbitration process. To do otherwise is to risk repeating the process followed in OJSC Ukrnafta.
Andrew B. Derman, Andrew Melsheimer, TJ Auner
Thompson & Knight, LLP
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