DISPUTES IN LATIN AMERICA’S ENERGY & NATURAL RESOURCE SECTOR
CD: What do you consider to be among the common causes of dispute within Latin America’s energy and natural resources sector?
Reynoso: In my experience, most disputes can be traced to two causes. The first is external to the contract, where market conditions – most often, the price of a commodity – have fluctuated since the contract was executed to the point that the terms are no longer economically viable for one party, leading that party to try and exit the agreement. The second common cause is rooted in the contract itself, where there is ambiguity in terms. The ambiguity is often triggered by a disruptive event that impedes the ability of a party to satisfy an obligation or to do so by an agreed-upon deadline. This creates a dispute over whether the disruptive event could reasonably have been foreseen or if it constitutes a force majeure.
CD: Does the region pose any specific challenges that make disputes more likely? To what extent do social and environmental issues play a role, for example?
Reynoso: There are characteristics of both the sector and the region that come into play. Many energy and natural resources contracts are either with the government directly or contingent on government licences or regulations. In addition, in the last several years, numerous countries in Latin America have seen changes not just in leadership, but in economic policy that can translate into a questioning of commitments made by the prior government. Besides political changes, there is also a baseline of economic volatility in the region. Because the economies of Latin America are so centred on commodities, hiccups in major economies such as China or the US can send shockwaves through the region. This vulnerability to macroeconomic events can quickly alter the conditions under which agreements were made and lead parties to seek to exit agreements.
Apr-Jun 2020 issue
Winston & Strawn LLP