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Victory: February 2016: ICC Arbitration Victory for Edison

February 2016

The firm recently obtained an important victory for Italian client Edison in an ICC arbitration. The tribunal reduced by more than EUR 1 billion, without interest and with retroactive effect, the price paid by Edison under a gas supply contract. Hearings on the merits were conducted over six days in July 2014 and September 2015. Italian law applied to the merits and the seat of the arbitration was in Switzerland.

The dispute arose out of a price review under a 25-year gas supply agreement signed in 2000, pursuant to which Edison agreed to buy Libyan gas sold by Eni North Africa (“Eni”). As in many long-term supply agreements for gas, the price of this contract is linked to the price of oil. Between 2009 and 2012, oil prices significantly increased while spot market gas prices remained stable. On October 1, 2012, Edison thus filed its price review request on the ground that a decline in gas prices and the decoupling of gas and oil values meant it was making a loss on the contract.

Price reviews can occur regularly in long-term gas supply contracts (typically, every 3 to 5 years). They are generally predicated upon the existence of significant changes affecting the value of gas on the buyer’s market (the so-called trigger).

Edison had already obtained a substantial price reduction in a prior arbitration (Quinn Emanuel was not involved). Edison had nonetheless triggered the new price review on the day on which it received the prior award (October 1, 2012). This situation raised the question of the significance of the prior award for the interpretation and the application of the price review provision in the current arbitration. Eni, as seller, contended that the trigger was not satisfied because no new change had taken place during the new reference period. Eni added that Edison relied in fact on changes, the effects of which had already been taken into account in the prior award.

T he tribunal decided that it did “not accept Respondent’s axiomatic position that if a change of a certain nature (such as ‘oversupply’ or ‘decoupling’) has been considered before, it cannot be considered again.” On the quantum, Eni and its experts advanced all sort of theories in order to justify that no price reduction should be allowed. They claimed that Edison was not an efficient market player and that its margins should not be restored to the same level as in the past in the current competitive environment. Quinn Emanuel defeated each and every one of them for Edison.

The Tribunal’s award will likely be regarded as a landmark decision in the field of gas price review arbitrations. This case was one of the largest gas price review arbitrations in Europe, involving the two main players of the Italian gas market (Edison is second and Eni is first). Further, the billion-dollar result obtained by Edison is amongst the largest amounts ever awarded in a price review arbitration. It will make a huge impact in the market and reinforces the reputation of the firm in the field.