Dispute Resolution In The Space Industry — 8 Reasons To Choose Arbitration

This blog post is part of Hannes Snellman’s space law blog series. In previous parts of the series, we have discussed the regulatory framework governing space activities and the role of the forthcoming EU Space Act in cyber security regulation.

Despite its technical complexity and high-risk nature, the escalation of disputes is relatively rare in the space industry. Disputes are typically resolved through negotiations between the parties involved, and there is a reluctance to resort to formal dispute resolution processes. However, changing regulations, the increasing number of operators, and the sector’s strong growth mean that disputes sometimes reach a point where they cannot be resolved without the involvement of an external dispute resolution method. In such cases, arbitration offers an effective means of resolving disputes between operators and has indeed been used in numerous disputes in the space sector.

Arbitration is a dispute resolution mechanism in which the parties agree to refer their dispute to an impartial arbitral tribunal rather than a national court. The award is binding on the parties and widely enforceable internationally. Such an agreement is typically made well in advance of any dispute arising, in an arbitration clause to be included in the commercial contract between the parties.

Below, we list eight reasons why arbitration is a viable option for dispute resolution in the space industry.

1. International enforceability

The space industry is highly international. For example, manufacturers of satellite components, satellite manufacturers, and companies providing launch services may be located in different parts of the world. In this context, it is particularly significant that, under the New York Convention, an arbitral award is enforceable in over 170 different countries. This is a significant practical advantage in a situation where the parties’ assets may be located in different countries.  

2. Clarity and impartiality in international situations

In cross-border contractual relationships, resolving a dispute in a national court of either state may prove challenging or even disadvantageous for the parties. Through an arbitration agreement, the parties can agree in advance on matters such as the seat of arbitration, which affects, for example, the procedural rules applicable to the arbitration proceedings.

3. Confidentiality

The space industry is developing rapidly, and operators are constantly coming up with new innovations. Proceedings before general courts are typically public, whereas arbitration proceedings are, in principle, non-public. A confidentiality obligation may be agreed upon if it is not already included in the arbitration rules applicable to the case or in the procedural rules. This ensures, among other things, the confidentiality of trade secrets and other sensitive information relating to the companies’ business operations.

4. Duration

Compared to proceedings in general courts, arbitration is a fast way to resolve disputes. This is a significant advantage in an industry where lengthy disputes may slow down innovation and development. Human and financial resources are not tied up in dispute resolution for unreasonable periods of time and can be quickly freed up for the core business of a rapidly growing company. Furthermore, an arbitral award is generally final, meaning it cannot be appealed in the same way as a judgment of a national court, thereby avoiding lengthy appeal processes.

5. Flexible procedure

Arbitration gives the parties the freedom to tailor the process to the specific needs of the dispute at hand. Such flexibility is not generally available in general courts, which are bound by national procedural laws. The Permanent Court of Arbitration (PCA) also has its own arbitration rules for the resolution of space disputes (PCA Optional Rules for Arbitration of Disputes Relating to Outer Space Activities). The parties may voluntarily agree to use these rules to resolve their dispute.

6. Expertise

Space contracts may involve entirely unique and complex technical issues, meaning that the proper resolution of disputes relating to them often requires specialist knowledge of the sector. Unlike in general court proceedings, in arbitration the parties can tailor the composition of the arbitral tribunal to the expertise required for the case, including highly technical expertise. There is public case law regarding the use of arbitration in disputes within the space industry, which a knowledgeable arbitral tribunal can use in resolving the dispute.

7. Investment arbitration

Government measures may make it more difficult for space industry operators to operate in a particular country. In such situations, many states have committed to investment treaties, under which a foreign company that has made an investment may initiate arbitration proceedings against the state. Examples of this include the launch dispute between Roscosmos and OneWeb, which is being resolved through arbitration, and the case of Devas v. India, which concerned India’s cancellation of an agreement on satellite transponder capacity and the leasing of the associated frequency band. In addition to investment arbitration, arbitration may also be used in international legal disputes between states.

8. Settlement

Initiating arbitration proceedings does not mean that the dispute cannot be settled. In many situations, it may even facilitate the settlement of the dispute. The rules of various arbitration institutions allow the parties to agree that the arbitrator act as a settlement facilitator. An experienced external facilitator can help the parties understand the strengths and weaknesses of their respective positions or even find an innovative solution that the parties may not have considered.

We have a dedicated team that advises clients operating in the space industry and is happy to discuss related issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.