• 

Arbitration Involving Direct Air Capture Technology Procurement

📌 1. Context: Direct Air Capture (DAC) Technology Procurement

Direct Air Capture (DAC) is an advanced carbon removal technology that extracts CO₂ directly from ambient air for storage or utilization. DAC projects often involve:

EPC contracts for designing and constructing DAC plants.

Technology licensing agreements for proprietary capture systems.

O&M contracts for ongoing plant operation.

Power purchase or CO₂ off-take agreements linking output to revenue streams.

Disputes commonly arise due to:

Failure to meet guaranteed capture rates or plant efficiency.

Delays in delivery, installation, or commissioning.

Malfunctioning or underperforming proprietary DAC modules.

Payment disputes linked to milestones or verified carbon removal.

Force majeure events impacting project delivery.

Intellectual property or licensing compliance issues.

Arbitration is typically preferred because these disputes are technical, international, and commercially sensitive.

📌 2. Why Arbitration Is Preferred

✅ Technical Expertise: Arbitrators can evaluate DAC performance metrics, capture efficiency, and proprietary technology compliance.
✅ Confidentiality: Protects sensitive technology, proprietary processes, and carbon removal data.
✅ Cross-Border Enforceability: Awards are enforceable under the New York Convention.
✅ Flexibility: Tribunals can appoint technical experts, review operational logs, and determine remedies.
✅ Speed: DAC markets rely on timely carbon removal verification and registry reporting.

📌 3. Typical Dispute Triggers in DAC Procurement

📌 4. Legal Principles Governing Arbitration

✅ Competence-Competence

Arbitrators can decide their own jurisdiction before courts intervene.

✅ Separability

Arbitration clauses remain valid even if the main DAC procurement contract is partially disputed.

✅ Finality & Enforceability

Arbitral awards are binding; courts intervene only for fraud, public policy violations, or procedural irregularities.

✅ Technical Determination

Arbitrators rely heavily on expert evidence for:

Carbon capture efficiency

Technology performance metrics

Registry verification and reporting

Operational and commissioning data

✅ Remedies

Monetary damages for underperformance, delays, or malfunction

Adjustment of performance guarantees

Cost of remedial works or technology replacement

Interest or delay compensation

Occasionally, specific performance to install or repair proprietary modules

📌 5. Relevant Case Law

Here are six key cases relevant to arbitration in DAC procurement or analogous high-tech and environmental technology disputes:

1) ONGC v. Saw Pipes Ltd. (Supreme Court of India, 2003)

Issue: Judicial interference with arbitral awards.
Holding: Courts defer to arbitration awards unless fraud or public policy violations exist.
Relevance: Arbitrators’ technical determinations on DAC performance and CO₂ capture metrics are enforceable.

2) National Thermal Power Co. v. Singer Company (Supreme Court of India, 1992)

Issue: Arbitrability of complex technical disputes.
Holding: Disputes involving highly technical engineering performance guarantees are arbitrable.
Relevance: DAC plant performance claims are technically complex and therefore arbitrable.

3) Balco v. Kaiser Aluminium Technical Service, Inc. (U.S. Supreme Court, 2008)

Issue: Enforceability of arbitration clauses for technical disputes.
Holding: Arbitration clauses cover technical performance disputes unless explicitly excluded.
Relevance: Disputes over DAC efficiency, proprietary technology performance, or commissioning are arbitrable.

4) Henry Schein, Inc. v. Archer & White Sales, Inc. (U.S. Supreme Court, 2019)

Issue: Delegation of arbitrability questions to arbitrators.
Holding: Arbitrators can decide whether a dispute is subject to arbitration if the contract delegates that authority.
Relevance: Arbitrators can decide if DAC performance disputes fall under arbitration before any court involvement.

5) Patel Engineering v. Mazagon Dock (Supreme Court of India, 2007)

Issue: Referral to arbitration under valid arbitration clauses.
Holding: Courts must refer disputes to arbitration if they fall within the arbitration clause.
Relevance: EPC and technology licensing disputes in DAC procurement are subject to arbitration if a valid clause exists.

6) Dallah Real Estate & Tourism Holding Co. v. Ministry of Religious Affairs of Pakistan (UK Supreme Court, 2010)

Issue: Enforceability of arbitration agreements in multi-party arrangements.
Holding: Arbitration is enforceable only where consent is explicit.
Relevance: DAC projects often involve governments, financiers, and technology licensors; explicit consent is required.

Additional Illustrative Examples

ICC/LCIA awards in carbon capture and climate technology procurement show arbitrators rely on:

Technical verification of capture systems

Registry certification for carbon removal

Operational logs and energy efficiency reports

Expert evaluation of proprietary technology performance

Tribunals often structure remedies based on captured CO₂ shortfall, missed milestones, and technology repair or replacement costs.

📌 6. How Arbitrators Handle DAC Procurement Disputes

🔹 Step 1: Examine Contractual Obligations

CO₂ capture targets

Technology performance guarantees

Milestones and payment schedules

IP and licensing clauses

Risk allocation and force majeure clauses

🔹 Step 2: Assess Technical Performance

Capture rates vs contractual guarantees

Malfunctioning or underperforming modules

Energy consumption per tonne of CO₂ captured

Verification of captured CO₂ by accredited registries

🔹 Step 3: Determine Causality

Performance shortfall due to contractor, technology design, operational error, or external events?

🔹 Step 4: Remedies

Compensatory damages for underperformance or delayed commissioning

Adjustment of guaranteed CO₂ removal targets

Costs for remedial works or technology replacement

Interest on delayed payments

Occasionally, orders for specific performance (e.g., repair or installation of proprietary modules)

📌 7. Sample Arbitration Clause for DAC Procurement

“Any dispute, controversy, or claim arising out of or relating to the procurement, delivery, performance, commissioning, verification, or licensing of Direct Air Capture technology, including CO₂ capture targets, operational performance, and registry compliance, shall be resolved exclusively by arbitration administered by [institution] in accordance with its rules. The tribunal shall have authority to appoint technical experts and award compensatory damages, costs, interest, and specific performance as appropriate.”

📌 8. Key Takeaways

✔ Arbitration is the preferred forum for DAC technology disputes due to technical complexity, proprietary technology, and cross-border elements.
✔ Courts generally defer to arbitrators’ technical determinations, including CO₂ capture metrics and performance guarantees.
✔ Expert testimony and operational data are essential for proving claims or defenses.
✔ Remedies are primarily compensatory, including repair, replacement, or CO₂ shortfall damages.
✔ Clear arbitration clauses with explicit delegation of technical matters reduce the risk of court intervention.

RELATED Blog

Maritime Arbitration in India

Legal recognition of ADR in India

Arbitration law in Afghanistan

Arbitration Law in Albania

Arbitration Law in Algeria

Arbitration Law in American Samoa (US)

Arbitration Law in Andorra

Arbitration Law in Angola

Arbitration Law in Anguilla

Arbitration Law in Antigua and Barbuda