Project development agreements with states and state-owned enterprises (SOEs) are often governed by the law of the host country (sometimes with freezing, stabilization, or other limiting clauses), while also being subject to arbitration seated in a neutral venue.  The assumption is that the courts of the neutral venue will have exclusive jurisdiction to supervise the arbitration and confirm, or set aside, any arbitral award.

A decision issued last week by the U.S. Court of Appeals for the D.C. Circuit in P&ID v. Nigeria puts that assumption in doubt by suggesting that an award can also be set aside by the courts of the state whose substantive law applies to the merits of the dispute.  Together with recent judgments in other jurisdictions, the decision underscores the importance for investors of:  (i) resisting selection of the host state’s substantive law where possible; and (ii) particularly where that is not possible, including express language confirming the parties’ agreement that, notwithstanding the choice of the host state’s law to govern interpretation of the contract, the arbitration process will be governed by the law of the arbitral seat.
Continue Reading D.C. Circuit Decision Underscores Need for Careful Drafting of Choice of Law Clauses in Host Country Agreements