The first Secretary-General of oPEC, explains reasons behind the adoption of the arbitral concept in oil concession Lijn general, there is considerable international support for the opinion that for the settlement of trade disputes arbitration is preferable to judicial procedure even where domestic differences are concerned, for reasons which seem to be universally recognized; arbitration is less rigid, less costly, and less dilatory than the normal judicial procedure.
Furthermore, persons who invest capital on a large scale in a foreign country feel more secure having an assurance that, if a dispute arose between them and the host country, they would not be subject to the strict legal system of the country. of which they are often ignorant and which they may fear may be applied with less than complete impartiality in cases involving foreigners well known that petroleum investments require large amounts of capital and advanced technology and that the element of risk, which is usually borne by the foreign oil company, is very high.
On the other hand, petroleum resources and their development are of vital importance to the economic growth of the country, often representing the cornerstone of the i country’s economic development. Furthermore, petroleum strategically important for both consuming and pro countries, which explains why oil agreements have often beef politically charged in the past. Collectively, these indicate that international arbitration is the most appropriate method for the settlement of disputes which arise government of a producing country national oil company(or its and a foreign oil concessionaire ddle method where national The explanations than The cumulative effect of these advantages can be seen in the terminated efforts of those negotiating oil concessions in the middle East to adopt international arbitration as the preferred method for settling disputes that may arise between parties bound by petroleum agreements.
There are, however, a few exceptions where petroleum agreements have provided for recourse to local courts for the settlement of disputes. Indeed, oPEC supports courts as a forum for the settlement of oil disputes as mtional opposed to international arbitration The late Dr. Ibrahim S former Senior Vice-President and General Counsel of the World Bank, provides an interesting explanation for certain countries’ recourse to local courts rather than international arbitration. He writes: The reticence of a number of oil-producing countries with respect to international arbitration is explained in part by previous experiences. [On] various occasions, for example, despite contractual clauses providing for the contrary, international arbitral tribunals have discarded the application of municipal law in favor of international law, sometimes using clearly offensive arguments. In one case involving Abu Dhabi, for example, Lord Asquith argued that: If a national law must be applied, it is that of Abu Dhabi.
But no such law reasonably be said to exist. The Sheikh administers a purely discretionary justice with the assistance of the Koran and be fanciful to suggest that in this very primitive region there is any set or body of legal principles applicable to the construction of modern commercial instruments Similarly, regarding disputes in Qatar, Sir Alfred Bucknill found that there was settled body of legal principles in Qatar applicable to construction of modern commercial instruments.” the Recourse to international arbitration certainly remains the preferred of dispute resolution in petroleum agreements. review those which advocate local courts are becoming rare for undertaken by the Secretariat of the Center ent of Investment Disputes(ICsID) of 102 oil agreements the Settle concluded by 92 different countries indicated that 93 percent of the contracts provided for arbitration(institutional or ad hoc and onl on percent provided for recourse to local courts.
Development of Arbitration Clauses The co remedy for When studying the arbitration clauses in petroleum agreements cannot fail to notice a clear development, over time, in their drafting one of the and contents. The early oil concessions embodied a simple, though obviously deficient arbitration clause. The D’Arcy concession of Ibitrators sipulated 1901, for example, stated in Article 17 that in the event of a dispute or difference arising regarding the interpretation of the concession President or the rights or responsibilities of either party, such dispute or difference would be submitted to two arbitrators in Tehran one arbitration follow the named by each of the parties and to an umpire, who was to be appointed by the arbitrators.
Furthermore, the decision of the opting inst clause such arbitrators or in the event of their disagreement, that of the umpire was to be considered final However, this type of clause had several weaknesses which made Dhabi the arbitration process susceptible to frustration by either of the Article 15 parties. For instance, it contained no time limits, no indication what was to be done in the event of refusal by any party to appe no provision covering disagreements regarding appointment of an umpire and no mention of the procedure followed or of the law to be applied by the arbitration could almost be said that the provision simply em arbitrary expression of intent-rather than a formal agreement-toa The Turkish Petroleum Company (later IPC) .