Calgary  Toronto  Moscow  Almaty/Atyrau  Caracas  Rio de Janeiro BRITISH INSTITUTE OF INTERNATIONAL AND COMPARATIVE LAW Recent Developments in International Arbitration in Canada and London: A Comparative Review Presenter:Jack Marshall QC, Macleod Dixon LLP Graeme Mew, Nicholl Paskell-Mede LLP Date:April 2, 2009 London

2 Case Study: Western Oil Sands

3 WHAT ARE THE ALBERTA OIL SANDS? North East Alberta -141,000 sq. kilometers (England Is 130,410 sq. kilometers) -1.7 trillion bbls. bitumen -170 billion bbls. recoverable crude

4 WHAT IS THE ATHABASCA OIL SANDS PROJECT 1.resource: 5 billion bbls. mineable bitumen (twice remaining Alberta conventional reserves) 2.major projects: mine and initial processing, pipeline, upgrader, power plant 3.production: 170,000 bbls./d 4.revenue: (at $50 U.S./bbl) = $8.5 million/d; $3 billion/yr 5.interests: Shell 60%; Chevron 20% Western 20% 6.initial cost estimate: $3.5 billion Cdn. 7.cost overrun: $5 billion Cdn.

5 POLICY OF INSURANCE 1.Traditional: course of construction, all risks, marine, loss of profits 2.Non-traditional: "INSURING CLAUSE The Underwriters agree to indemnify the Insured(s) subject to the Limits and Deductibles set out in the declarations of this Section IV: This Section is to Indemnify the insured for loss of revenue and/or continuing expenses and/or debt servicing amounts and/or increased cost of work and/or expenses actually sustained arising from a delay in achieving the Guaranteed Production Levels. This Section will also Indemnify those costs and expenses including debt servicing necessarily and reasonably incurred by the Insured in connection with the modification, repair or replacement of equipment and/or material, and Cost Overruns which are directly related to achieving the Guaranteed Production Levels."

6 Arbitration Clause 5. Arbitration Clause: "Any dispute or other matter in question arising between the Insured(s) and Insurers under, out of or in connection with or in relation to this Section of the Policy shall be submitted to arbitration. The Insured(s) and Insurers each shall nominate an arbitrator within fifteen (15) days of the date upon which either gives the other written notice that it demands arbitration hereunder an d the two (2) so named shall select an umpire before entering upon the arbitration. The arbitrators shall consider the differences between the parties and shall submit only such questions upon which they disagree to the …the arbitrators and the umpire shall make their award in writing within sixty (60) days of the date on which the umpire has been named and agreed…The parties hereto agree that they have entered into this Clause to provide for a means of quickly settling disputes without resort to litigation…."

7 DISPUTE 1.Was it cost overrun insurance or efficacy insurance? 2.Was the risk misrepresented by Western and JLT? 3.Was there a material change in the risk between presentation and placement?

8 OUTCOME 4 years 37 procedural motions prior to hearing commencement many court applications/Court of Appeal/Supreme Court of Canada 50 hearing days 2 sittings in London tens of millions of dollars total cost creating 2 hearing rooms 4 judicial appointments parallel arbitration involving fire damage and loss of production settlement

9 LEGAL CHALLENGES 1. Arbitration Clause: deemed unworkable and changed by parties to Panel of 3 2. Time Limit: deemed unworkable by parties and left open by Panel 3. Challenge of Chair for Bias: Withdrawal without ruling from Panel or Court 4. Statement of Claim issued by Western vs. JLT and Insurers standstill agreement Court directed stay: Jardine Lloyd Thompson Canada Inc. v. Western Oil Sands Inc., 2006 ACQB 933Jardine Lloyd Thompson Canada Inc. v. Western Oil Sands Inc. 5. Attempt to consolidate arbitrations Court found it lacked jurisdiction: Western Oil Sands Inc. v. Allianz Insurance Co. of Canada, 2004 A.J. No. 85Western Oil Sands Inc. v. Allianz Insurance Co. of Canada

10 LEGAL CHALLENGES 6.Attempt to pursue London Arbitration by Ace Bermuda Court upheld Panel's denial of ACE application to pursue London Arbitration Ace Bermuda Insurance Ltd. v. Allianz Insurance Company of CanadaAce Bermuda Insurance Ltd. v. Allianz Insurance Company of Canada, 2005 ABQB 975 standard of review: "reasonableness, deference & respect". "[53] Courts are generally reluctant to interfere with decisions of a commercial arbitral tribunal, particularly in a matter involving an international commercial arbitration. That was made clear in Corporacion Transnacional de Inversiones (which was upheld by the Ontario Court of Appeal). It was made clear in Jardine Lloyd Thompson. Notwithstanding that article 16(3) appears to give the reviewing court wide discretion, I am satisfied that the article does not go so far as to allow a reviewing in court to substitute its view simply because that court would not have reached the same conclusion. The standard of review ought to be, and I take it to be, one of reasonableness, deference & respect."

11 LEGAL CHALLENGES 7. Production of confidential documents relating to non-party ordered by Panel production upheld by Court of Queen's Bench: Jardine Lloyd Thompson Canada Inc. v. Western Oil Sands Inc., 2005 A.J. No. 943Jardine Lloyd Thompson Canada Inc. v. Western Oil Sands Inc. affirmed by Court of Appeal: Jardine Lloyd Thompson Canada Inc. et al. v. SJO Catlin et al, 2006 A.J. No. 32Jardine Lloyd Thompson Canada Inc. et al. v. SJO Catlin et al leave denied by SCC: Jardine Lloyd Thompson Canada Inc. et al v. SJO Catlin et al, 2006 S.C.C.A. No. 87Jardine Lloyd Thompson Canada Inc. et al v. SJO Catlin et al

12 LEGAL CHALLENGES 8. Production of documents and discovery of witnesses from non-party to arbitration ordered by Panel overturned by Court of Queen's Bench: Jardine Lloyd Thompson Canada Inc. v. Western Oil Sands Inc. et al, 2005 A.J. No. 943,Jardine Lloyd Thompson Canada Inc. v. Western Oil Sands Inc. et al reversed by Court of Appeal: Jardine Lloyd Thompson Canada Inc et al. v. SJO Catlin et al, 2006 A.J. No. 32Jardine Lloyd Thompson Canada Inc et al. v. SJO Catlin et al leave denied by SCC: Jardine Lloyd Thompson Canada Inc. et al v. SJO Catlin et al, 2006 S.C.C.A. No. 87Jardine Lloyd Thompson Canada Inc. et al v. SJO Catlin et al

13 LESSONS TO BE LEARNED Strong support for arbitration process vs. litigation Strong support for procedural rulings by Panel Beware of what you ask for: turning arbitration into classic North American litigation