Mitigating risk of disputes

The primary exposure to disputes faced by inward investors into the United Kingdom (as in any other jurisdiction) arises under the contracts they enter. There are a number of steps investors can take to mitigate contractual risk, but the most effective is typically to ensure that contracts are tightly worded and clearly allocate commercial and performance risks. An informed view should be taken on whether a contract should specify that disputes be referred to litigation or to international arbitration. Investors should also consider structuring investments not only with a view to tax efficiency, but also to benefit from the protections from political risk offered by the United Kingdom’s extensive network of investment treaties.

Resolution of Disputes

In our experience, parties are most likely to resolve disputes to their advantage if they act promptly to assess and protect their position at an early stage. If litigation or arbitration is necessary, London solicitors with suitable expertise should be retained.

The international arbitration and litigation team at Akin Gump is regarded as one of the best in the world, with partner Justin Williams described as “one of the best international arbitration partners on either side of the Atlantic; he is brainy, thoughtful, persuasive and transparently straightforward – a real star” by the Legal 500 Legal Directory and “shrewd, perceptive and a good leader on a big case” and “very professional and very experienced” by the Chambers UK Legal Directory. Other recent client feedback reported in legal directories includes:

“Akin Gump is a superb firm for international arbitration. They combine the best qualities of the US firms (energy, dynamism and spark) – with those of the London practices (cool, calm, collected analysis and poised delivery). This is a lethally effective brew for international arbitration – tribunals and clients are blown away.”

“Of all the law firms I deal with in London, Akin Gump is unique for effective and insightful advice, delivered on budget, and with exceptional quality in legal and commercial strategy.”

Topical issue: climate change disputes

Climate change is increasingly attracting the attention of investors. Whether and to what extent investors may be exposed to claims in this or related areas (such as the energy transition) depends on the nature of their investment and the allocation of risk. Akin Gump can assist with all such claims, however, we outline below five key categories of claims we are seeing.

‘Greenwashing’

Misleading public statements as to sustainability may give rise to tortious, statutory and regulatory liability. These sorts of issues have begun to result in litigation, including group action cases such as that against Volkswagen relating to its alleged installation of ‘defeat devices’ in relation to diesel emissions.

Shareholder activism

Activist shareholders are increasingly seeking to influence companies’ actions on environmental, social and governance (ESG) issues, both for ethical and economic reasons. One activist tool is the use of litigation, which is increasingly being deployed. The highest profile example to date is the case against Royal Dutch Shell in which the Dutch court found Shell directly responsible for causing climate change on the basis of a duty of care flowing from international treaties, and ordered Shell to lower its emissions. In principle such claims might expose both companies and board members.

Breach of tortious/statutory duty

Claims for compensation for loss caused by alleged breaches of tortious or statutory duties are regularly brought, including in relation to environmental issues. A number of cases in recent years have highlighted that companies may be exposed to litigation in the United Kingdom in relation to alleged environment and other damage caused by the activities of overseas subsidiaries.

Contractual disputes

The energy transition will increasingly result in contractual disputes, including from issues as diverse as increasing energy price volatility, the decommissioning of oil and gas production assets and the risks associated with new technologies. Further climate change itself will result in claims, for example concerning force majeure, frustration or termination due to the impact of weather-related events.

Investor-state disputes

Government policy (in particular subsidy) is key to encouraging investment in renewable energy, but once investment decisions are made in reliance on particular policies then any policy change may potentially give investors grounds to bring arbitration proceedings against the host state under applicable investment treaties. A raft of such claims, for example, has been brought in recent years against Spain. Other investor-state claims have been brought for compensation for measures intended to achieve climate goals that are said to prejudice investments. In order to be able potentially to bring such a claim, investments should be structured from the outset to be covered under a relevant investment treaty.

For further advice and assistance please contact:

Akin Gump LLP
10 Bishops Square
London
E1 6EG
Tel: +44 (0)20 7012 9660
Contact: Justin Williams
Email: williamsj@akingump.com
Website: www.akingump.com/en/