32 J. Int'l Arb. 143 (2015)
Use of Arbitration in Loan Agreements in International Project Finance: Opening Pandora's Box or an Unexpected Panacea, The

handle is hein.kluwer/jia0032 and id is 149 raw text is: 








   The Use of Arbitration in Loan Agreements in

 International Project Finance: Opening Pandora's

                 Box or an Unexpected Panacea?



                                       Maria   DAVIES*


      Litigation has been the preferred dispute resolution method in loan agreements in international
      projectfinance. However, it has proven inflexible, failing to account for the particularities of each
      project and the allocation of risks between lenders and borrowers. This article considers the use of
      arbitration as an alternative. Being a creature of consent and .contract, it provides invaluable
      support where litigation would otherwise fail: first, where a currency risk exists, and second, in
      multiparty proceedings where the borrower's default is the direct result of the off-taker's failure to
      meet its obligations under the off-take agreement. Outside those situations, the use of unilateral
      dispute resolution provisions is recommended, allowing lenders to assess which dispute resolution
      method would be better-suited once a dispute has arisen. In this context, the article puts forward
      drafting recommendations, enabling the unilateral clause to withstand any potential challenges to
      its validity by borrowers. The article further addresses the objections raised against the suitability
      of international arbitration as a means to solve disputes under international loan agreements,
      such as its dependency on the cooperation of local courts. It also provides lenders with a useful
      toolkit to ease the enforcement of arbitral awards, such as the availability of political risk
      insurance and seeking compensation for the expropriation of arbitral awards.


1 INTRODUCTION

Financing   a project  is key  to its development and subsequent operation.' In order
to  be  able  to do  this, sponsors   resort to  both   equity  and  debt  financing.  While
project   finance   equity   providers   are  willing  to  accept   more risks than debt
providers  and  focus  on  the return,  returns for  the latter are fixed and  relatively low.



    Maria  Davies, LL.M  degree in International Business and Economic Law and  a Certificate in
    international Arbitration and Dispute Resolution from Georgetown University Law Center, for which
    she was awarded  a Distinction and Dean's List Honors. She also received the Thomas Bradbury
    Chetwood,  SJ. Prize for graduating with the highest academic average in the class. Ms Davies has
    previously completed  an LL.B  degree  at King's College London.  Author's email address is
    maria.davies2l3@yahoo.co.uk.
    The  sponsors' ability to obtain financing commitments may be critical in a bid for a project that is
    being put out for competitive tender by a procuring authority. Financing costs, such as debt interest
    and fees payable to lenders, also directly affect the profitability of the project. See John Dewar &
    Oliver Irwin, Project Risks, in International Project Finance 81, 92 (John Dewar ed., Oxford University
    Press 2011).

Davies, Maria. 'The Use ofArbitration in Loan Agreements in International Project Finance: Opening
Pandora's Box or an Unexpected Panacea?'. Journal of International Arbitration 32, no. 2 (2015): 143-172.
C 2015 Kluwer  Law International BV, The Netherlands

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