UK: The UK's Electricity Arbitration Association: Keeping Pace with the Electricity Industry?

Last Updated: 20 September 2010
Article by Ben Holland

In 1989, the Electricity Arbitration Association (the "EAA") was established in the UK to promote the efficient and economic resolution of disputes within the electricity supply industry. This was to be achieved primarily by means of arbitration in accordance with a specifically tailored set of rules (the "EAA Rules").  The EAA Rules provide an industry focussed dispute resolution procedure, which has been adopted by electricity industry participants in the UK over the years and incorporated into many long-term industry contracts in the UK.  The evolution of the European electricity sector over the last 20 years has led to an electricity industry that is increasingly international, with integrated utility companies owned by large and well-known multi-national groups.  In addition, regulatory interventions by the European Union, such as the European Union Emissions Trading Scheme, have crossed national boundaries. These factors have contributed to a rise in international disputes between increasingly consolidated multi-national electricity supply utility groups.  This raises the question of whether the dispute resolution framework established by the EAA Rules still adequately and appropriately reflects the evolving needs of the electricity supply industry users of these rules.  This article explores and seeks to answer that question, as well as suggesting ways in which further evolution of the EAA Rules might be desirable to users.

The EAA was established in the UK in 1989 by groups representing the electricity industry, including generators and users.  The EAA, in conjunction with the electricity industry, developed the EAA Rules to incorporate procedures for the resolution of disputes by arbitration, mediation and expert determination.   Over the years, the EAA Rules have been incorporated into numerous industry agreements as the dispute resolution method of choice.  The EAA President acts as an appointing authority (see Rule 3), and the EAA maintains a list of potential arbitrators and expert determiners, that have experience within the electricity industry.  The EAA Rules provide an industry focussed dispute resolution procedure that, over the years has been utilised in numerous arbitrations and expert determinations.  The EAA Rules are far more ambitious in their scope than many other institutional rules of international arbitration, and provide comprehensive provisions in relation to the following:

  • Consolidation – Whenever requested to do so by a party to any EAA arbitration that potentially overlaps with another EAA arbitration, the President of the EAA has the power, upon his initiative but after consultation with the parties and the tribunals (to all the potentially overlapping arbitrations), to consolidate related disputes between the same parties in order to streamline the arbitration process (see Rule 13).  This makes the EAA Rules attractive to industry participants that engage in multiple related contracts between the same parties.  As multi-contract relationships are common in the electricity sector, this is a bold and innovative attempt to resolve one of the major shortcomings of international arbitration. Such an approach is somewhat wider than that taken by other major arbitral institutions such as, for example, the International Court of Commerce (ICC), the rules of which provide that the ICC Court may only consider the issue of consolidation on application of one of the parties and imposes restrictive conditions on the ability to consolidate (see Article 4(6) of the ICC Rules – although these are under revision).  In addition, the President of the EAA hears any objections to his own decision to order consolidation (see Rule 13.3).
  • Joinder – The EAA Rules also include detailed provisions allowing the joinder to an arbitration of any other contracting party (see Rule 14.1), on the tribunal's own motion, or on the application of the additional contracting party.  This once again makes the EAA Rules attractive to industry participants who are engaged in multi-party contracts, which are common in the electricity sector.  Such provisions are on a par with some of the major international arbitral institutions such as the ICC and the London Court of Internal Arbitration (LCIA) both of which contain similar provisions in this respect (see Article 22.1(h) of the LCIA Rules), although this provision is narrower than the EAA Rules, as only a party to the arbitration (not the additional party) may apply for a joinder, and under LCIA Rule 22(h) at least one party to the arbitration plus the additional party must consent to joinder.  An EAA tribunal can also, under Rule 14.2, join, as an additional party a non-party to the contract (and the arbitration agreement) upon the consent of that non-party but without the consent of any other party to the arbitration agreement or the contract, as long as the non-party agrees to be bound by all the provisions of the EAA Rules and by any award.  Arguably this impacts significantly on the privity of the arbitration agreement.  However, the President of the EAA hears and determines any challenge to an order to allow joinder. 
  • Severance – In addition to the power to join other contracting parties and/or consolidate multiple arbitration proceedings, the EAA Rules also allow – including on the tribunal's own motion – the severance of such joinders or consolidations in circumstances in which they are no longer appropriate (see Rule 15), ensuring that contracting parties who ought not to be involved in a dispute do not become so merely as a result of their position as a contracting party.
  • Appointment of a specialist arbitrator – The EAA Rules provide that, in circumstances in which the President of the EAA is required to appoint an arbitrator, he should have regard to "qualifications" and "experience" of an individual and to "the facts and issues of the dispute" (see Rule 3.2).  This has led to the establishment of a list of suitably experienced electricity sector practitioners, allowing parties to benefit from individual arbitrators familiar with the often intensely complex contractual and regulatory framework in which the electricity industry operates.  Following these guidelines, the EAA has a strong track-record in appointing suitable candidates with the appropriate expertise to determine what may be a highly technical dispute.

As such, the EAA Rules provide a flexible framework within which industry players can determine their disputes.  However, since the EAA Rules were promulgated in 1989 the breadth and nature of the UK electricity market has changed substantially.  What was once a nationally focussed industry has evolved significantly and become increasing international.  Evolution of the ownership of industry participants means that some are now part of groups that have headquarters outside the UK; others have expanded and also do business outside the UK even though their international headquarters remain in the UK.  There has also been a recent increase in disputes, particularly due to the changes in patterns of electricity off take with the onset of the economic crisis. 

Given such developments, it is necessary to consider whether or not the EAA continues to adequately meet the needs of its existing and potential users and whether it can continue to do so if it does not evolve to address the new challenges faced by industry participants.  Most notably such challenges include applying the EAA Rules to disputes between parties based outside the UK and/or those engaged in international contracts.

There are a number of areas where the EAA Rules merit re-examination.  Such potential updates could include the following:

  • Currently, all arbitrations under the EAA Rules must take place in England and Wales (see Rule 22.1).  Amending this clause to enable the parties to select by agreement the most suitable seat and governing law for the arbitration procedure (or other dispute resolution process) would bring the EAA in line with other international arbitral institutions such as the ICC and LCIA, while still providing its users with a pool of arbitrators with the technical expertise and industry focus that some other arbitral institutions may not be able to offer.
  • Amending the powers of the President.  Under certain provisions in the EAA Rules, the President is given powers that would arguably be better placed with the appointed arbitrator or tribunal, for example the power to consolidate multiple arbitration proceedings (see Rule 13), where the arbitrator or tribunal may be better placed than the President of the EAA to determine the appropriateness of the proposed consolidation.  By distinguishing the roles of the President of the EAA (as appointing authority) and any tribunal or arbitrator, the EAA would align the EAA with other international arbitral institutions.
  • Amending the EAA Rules so that where a dispute has arisen between parties of differing nationalities, any sole arbitrator or tribunal chairperson is of a nationality other than those of the parties in dispute.  This would again bring the EAA in line with other international arbitral institutions such as the LCIA and the ICC, both of which include such provisions (see Article 6.1 of the LCIA Rules and Article 9(5) of the Rules of the ICC).  Such amendments could arguably increase the attractiveness of the EAA to potential users in international markets, although note the recent controversy arising out of the Court of Appeal's decision in Jivraj v. Hashwani that such provisions breach discrimination legislation.
  • Amending references to outdated legislation.  Whilst such matters do not materially impact on the functionality of the EAA Rules, references to the outdated UK Rules of the Supreme Court and the (repealed) Arbitration Act 1975 may deter potential users, who are likely to be sophisticated users of international arbitration procedures.
  • Providing greater user access to the EAA and its Rules.  The further development of a website, or other public forum, providing key information in relation to the EAA, its key representatives and the EAA Rules could assist potential users in considering whether or not to incorporate the EAA Rules in their contracts.

Amendments/updates such as those suggested above may remove barriers to the incorporation of the EAA Rules in future industry agreements.  It would also demonstrate to sector participants that the EAA remains a relevant industry focussed appointing authority and that its EAA Rules cater to the needs of today's electricity market.  After a successful first 20 years, updating the EAA Rules would enable the EAA to adapt to an increasingly international electricity industry, update its accessibility to its users (and potential users) and would increase the use of the EAA Rules. These changes would ensure that the EAA remains a wise choice as an arbitration institution for the resolution of electricity industry disputes.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 17/09/2010.

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