The Abu Dhabi oil Experience: Certain Recent Developments International arbitration
The present case were not in themselves unlawful The tribunal concluded that an award declaring that the nationalization laws were ineffective to transfer rights under the concessions would be contrary to the right to nationalize and were practically unenforceable. It was determined that the right for compensation existed and LIAMCO was entitled to it The compensation was calculated by adding claim for value of plant and equipment, loss of concession, interest and costs The decisions in the AMINOIL and Libyan nationalization cases have been published.
Commenting on these and similar arbitration cases, Lord Wilberforce said at an International Law Association(LA) meeting in 1981 arbitrator tow a huge industry concerned with divan between much states and powerful multinationals This meant the people involved In this business are now the foremost law The big bains.
It means that they are making law making the top level from which it will filter down to national domestic the traditional process of domestic Io Professor Richard Bentham makes the following remarks on contribution of the awards in those international arbitration cases to building a new lex Mercator and to providing an appropriate framework for the resolution of disputes arising under petroleum-Arbitration and the law developed from it are essential to maintain and fester world trade, and it is probably not an exaggeration to say that the decisions of arbitral tribunals are at present building a new Mercator a new law for international trade a law which may help to resolve the continuing conflict between the concepts of stent serum on the one hand and”changing circumstances on the other.
Nationalization: According to the tribunal, the decree was a valid exercise of the right of nationalization.
The tribunal found that the nationalization was neither confiscatory nor discriminatory.” The tribunal concluded that the nationalization was not inconsistent with the concession. Principles of Indemnification: According to the award, appropriate compensation” under the terms of the General Assembly Resolution 1803 was to be determined depending on the circumstances of the case rather than on interpretation of terms such as”prompt, adequate and effective” or “fair.” The tribunal held that compensation was to be assessed with regard to the legitimate expectations of the parties reflected in the equilibrium” of the contract 2K Decision The tribunal estimated royalties, taxes due to the Government of Kuwait and liabilities to third parties. The tribunal also assessed the value of AMINOIL’s compensation. Both sums were offset, resulting in a balance in favor of AMI payable on July 1, 1982.
Libyan American oil Company(LIAMCo) vs. Government the Libyan Arab Republic, 1977 In 1955 the Libyan Ministry of Petroleum granted three con to the Libyan American oil company(LIAMCO) Following th revolution in 1969, the new government of Libya changes in the economic provisions of the concessions, In promulgated a 1973, the Libyan Revolutionary Command Council law nationalizing 51 percent of LIAMCO’s concession February 1974, the remaining 49 percent of LIAMCo’s rights also nationalized. Although there were provisions in the la compensation, no compensation was actually offered to LIAMCo Object of the claim: LIAMCO claimed that the nationalization laws constituted a breach of the concessions. In the event of LIAMCO not being restored to its concession rights, LIAMco claimed damages or compensation.
Relevant legal issues Applicable Law: The tribunal observed that”It is an accepted principle of international law that the arbitral rules of procedure shall be determined by the agreement of the parties, or in default of agreement, by decision of the Arbitral Tribunal independently of the local law of the seat of arbitration. In this case, in absence of a choice law for the procedure, the determined that the principles contained in the Draft Convention on Arbitral Procedure by the International Law Commission of the United Nations in 1958 were to govern the procedure. concessions According to the tribunal, the law governing principles of was to be determined by reference to the general was international law, which provided that a contract governed by the law expressly or impliedly chosen by the gend nati them right es In the present case, the law chosen by the parties w law insofar as it was compatible with international law Libyan subsidiary role, the general principles of law. The a arbitrator found that, in general.
Libyan law was in conformity with international law and the general principles of law ity of the Nationalization: The tribunal observed that the sovereign right of the state to nationalize was recognized in state Celtic and several General Assembly resolutions which reflected the dominant trend of international opinion in this respect. The tribunal also observed that nationalization is not unlawful as long as it is not discriminatory and is not accompanied by some other wrongful act. In the view of the arbitrator, international law no longer inquired into the motives for the nationalization to see if it involved a legitimate public unless those motives were discriminatory. The tribunal held that, in the case in question, the nationalization had not been discriminatory. Decision: The arbitrator observed that” restitution in integument is generally impossible in international law Th tribunal considered that restitutio amounted to an order to revoke nationalization.
The Oil t of d the jurisdiction of Saudi Arabia, the parties envisaged the f a law to be determined by the tribunal app applicable Law: Ler trilobite: Based on the fact that”the Parties intended from the very beginning to withdraw their disputes from the jurisdiction of local tribunals,” the tribunal held that the law to be applied was”mot the law of Saudi Arabia The arbitrators observed that arbitral proceedings to which a state is a party could not be subject to the law of another state. It was held that the”arbitration, as such,” was to be governed by”the Law of Nations.”
Characterization: It was determined by the arbitrators that the oil concession was to be characterized in accordance with Muslim law. The Hanbali School of Muslim law was to determine the legal nature of the concession. Proper Law: The tribunal held that: “Matters pertaining to private law are, in principle, governed by the la of Saudi Arabia but with one important reservation. The law must, in case of need, be interpreted or supplemented by the general principles of law, by the custom and practice in the oil business and by notions of pure jurisprudence”Contractual Concessions and”Public Service Concessions The tribunal held that a concession that is contractual in character gives rights and obligations to the concessionary company that cannot be modified without the company’s Aramco concession was Decision The tribunal found that the provisions were contractual in character, and that its transport tribunal held that prevail over those of the Onassis agreement. The in question Aramco had the exclusive right to transport the oil.
THE SETTLEMENT OF DISPUTES UNDER PETROLEUM Agreements
legal principles applicable to the construction of modern commercial instruments.” According to the arbitrator the agreement called”for the application of principles rooted in the good sense and common practice of the generality of civilized nations- a sort of modern law of nature,” In the view of Lord Asquith, although English municipal law was inapplicable as such some of its rules were”so firmly grounded in reason as to form part of this broad part of jurisprudence-this modern law of nature,,14 Decision: The arbitrator found that the contract included the subsoil of the territorial waters of Abu Dhabi, but not the subsoil of the continental shelf Ruler of Qatar vs. International Marine Oil Company Ltd., 1953 A concession agreement was signed on August 5, 1949 between the Ruler of Qatar the father of the claimant agents of the and respondent. Under the terms of the agreement, the company was to pay annually an agreed amount of money.
Object of the Claim: The crucial question in this arbitration was whether the proper law to be applied in the construction of the principal agreement was Islamic law or the principles of natural justice and equity. The tribunal observed that there was nothing in he principal or supplemental agreements which shed”clear light upon the intention of the parties on this the view of the referee, all considerations pointed to the application of Islamic law being the law administered in Qatar).
However, the refer concluded, based on the Abu Dhabi award, that there was”no settled body of legal principles in Qatar applicable to the construction of modem commercial instruments.” The arbitrator observed that if Islamic law was applicable, certain parts of the contract would then be”open to the criticism of being invalid.” In this respect, the referee added: “I cannot think that the ruler intended Islamic law to apply to a contract upon which he was to receive considerable sums of money, although Islamic declare that the transaction was wholly or partially void law win held that neither party”intended Islamic law to apply,” and therefore the agreement was to be governed by the”principles of justice, 16 equity and good conscience Decision: on the question of whether the fixed annual pa were payable in arrears or in advance, Sir Alfred Bu held th”they were payable in arrears and subject to the right of die Company to terminate its liability in respect thereof Waller three months’ notice.”
Saudi Arabia vs. Arabian American Oil Company(Aramco), 1958 On May 29, 1933, a concession agreement was signed between th Government of the Kingdom of Saudi Arabia and Standard oil Company of California(SOCAL, later Aramco). On January 20 1954, a different agreement was signed between the Government of the Kingdom of Saudi Arabia and Mr. A.S. Onassis, whereby the Saudi Arabian Maritime Tankers Company Ltd. was to have a right of priority for the transport of oil. Shortly after Aramco advised that the Saudi tankers would have priority over its tankers for loading Saudi petroleum. Aramco claimed that the agreement with Mr. Onassis violated the 1933 concession. the object of the claim: The arbitration was to determine whether 1933 concession agreement entitled the company to de preference or priority to national tankers and whether the agreement between the Government the Kingdom of Saudi Arabia and Onassis was in conflict with the Aramco concession No were damages was Legal Issues: The tribunal observed that Saudi Arabian matters chosen by the as the applicable law”in so far as within the jurisdiction of Saudi Arabia.”
concessions in the Arab producing countries
Iraq in 1925 represented a slight improvement on concession. Article 40 of the agreement stipulated arbitrators failed upon a referee they were to request to agree Justic the President of the Permanent Court .
Cases successfully Referred to Arbitration Despite the frequent use of arbitration clauses in oil concessions the Middle East, in practice only a very small number of dspdad have been settled by arbitration. Differences arising bere countries and concessionaires have usually been negotiations. In fact, until the late 1970s, arbitration pro
ENTITLEMENT DISPUTES UNDER PETROLEUM Agreements THE concessions in the Arab producing countries of the area had been in only four cases, between: the Ruler of and Petroleum Development(Qatar), Ltd. in 1950; the eut r on of Sheikh of Abu Dhabi and Petroleum Development (Trucial Coast) an Co Ltd.
in 1951: the Ruler of Qatar and the International Marine oil Company Ltd. in 1953: and the Government of Saudi Arabia and f the two the Arabian American oil Company(Aramco) in 1958. In the on would early 1980s there was also an arbitration case involving the e(con government of Kuwait and the American Independent oil ointment Company(AMINOIL) (1982) For a complete picture of oil arbitration in the Arab world, one cle 42) must include the arbitration cases which were filed against the ination to Libyan government by the oil companies that were nationalized by 1963, the Libya in the 1970s.