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DISPUTE RESOLUTION MECHANISMS CONTAINED IN SELECTED MODEL PETROLEUM AGREEMENTS
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- 2.6. ANALYSIS 2.6.1. NON-COMPLIANCE AND THE DOCTRINE OF SEPARABILITY
- 2.6.2. LACK OF IMPARTIALITY AND EXPERTISE OF LOCAL COURTS
- 2.6.3. INTERNATIONAL ADJUDICATING BODIES AND SOVERIEGNTY OF HOST-NATIONS
- 2.6.4. INTERNATIONAL ARBITRATION AND NON-COMMERCIAL ISSUES
2.5. DISPUTE RESOLUTION MECHANISMS CONTAINED IN SELECTED MODEL PETROLEUM AGREEMENTS As earlier indicated, parties to petroleum agreements normally provide for various dispute resolution mechanisms indicated above. A case in point is Article 24 of the Petroleum Agreement between the Republic of Ghana, Ghana National Petroleum Corporation, on the hand and Kosmos Energy Ghana, H.C and the E.O. Group36 on the other. Under the said Agreement37, any dispute or difference arising between the and GNPC on one hand and either of the other parties on the other hand, in relation to or in connection with or arising out of any terms and conditions of the agreement shall be resolved amicably through consultation and negotiation. The provision however limits that process to thirty (30) days, after notification by any of the parties to the others of the occurrence of the dispute, unless a longer period is agreed between the parties, failing which any of the parties “shall have the right to have such dispute or difference settled through international arbitration”. Arbitration is however one of the dominant processes provided in petroleum contracts for the resolution of disputes that the parties are not able to resolve through consultation conciliation or negotiation. Unless a contract includes provisions requiring the parties to use an arbitration process, the dispute would usually be settled through the courts of the host country. It is interesting to note that not only does the Kosmos agreement provide for the resolution of disputes by an international arbitration body in London, but also “…that no Party shall be required to take any steps to pursue or exhaust the judicial remedies available under the laws of Ghana with respect to the dispute before a Party institutes an arbitration proceeding under the Convention.”38 This provision can at best be described as a ‘brutum fulmen’39. This is because as will be shown subsequently in this paper, not every dispute arising from the agreement can be referred to the arbitral tribunal. As earlier pointed out, matters bordering on the environment, interpretation and enforcement of the Constitution, as well as the public interest have been excluded by Act 798 from being referred to and settled by way of arbitration. This point is important in that the Kosmos agreement stipulates that; “Any Arbitral Tribunal constituted pursuant to this Agreement shall apply the laws of the Republic of Ghana in force on the Effective Date, consistent with such rules of international law as may be applicable, including rules and principles as have been applied by international tribunals.”40 It is however difficult to understand what might have informed the inclusion of the emphasised portion of this quotation from the Kosmos agreement. It is suggested that subsequent petroleum agreements should ensure that the agreement is subject to the laws of Ghana simpliciter, as the qualification, “consistent with such rules of international law as may be applicable, including rules and principles as have been applied by international tribunals” tends to subject Ghanaian law to rules of international law which may effectively defeat the purpose of choosing Ghanaian law as the applicable law. It is important to emphasis the position that notwithstanding the fact that parties to Ghana’s petroleum agreement may agree to submit all disputes, including those relating to the environment to arbitration, usually international arbitration, an objection can be raised through the appropriate processes to urge on the Arbitral body to decline jurisdiction to the extent that the matter before it relates to any of the matters specified under Ghana’s ADR Act,41 or that the subject matter of the dispute or part of it borders on the interpretation of Ghana’s Constitution. A case in point is Attorney General V Balkan Energy Co. Ltd.42 In that case, the Attorney General of Ghana sued Balkan Energy in the High Court of Ghana pursuant to an earlier decision obtained by the Attorney General to refer a constitutional matter which formed part of the matter before the arbitration body to the Supreme Court of Ghana.
Most of the petroleum agreements between a developing host state and an IOC cited by this paper confirms the assertion that such agreements usually provide for the settlement of disputes in a foreign country, usually the UK and the US. For instance the Kosmos agreement provides that; “Any arbitration proceeding pursuant to this Agreement shall be conducted in accordance with the Arbitration Rules of the Centre in effect on the date on which the proceeding is instituted. The Parties agree that any arbitration proceeding conducted pursuant to this Agreement shall be held in London, England at the International Centre for Dispute Resolution. The language of the arbitration shall be English. The arbitration proceeding and any award shall be held strictly confidential, except as required for enforcement.”46 In the case of Afghanistan, the model petroleum agreement provides that all disputes shall be submitted to the ICSID, seat of arbitration being London, England. The Azerbaijan agreement also provides that disputes shall be referred to UNCITRAL and that the seat of the arbitration shall be Stockholm. The model petroleum agreements of Iraq, Libya and Indonesia on the other hand provide that all disputes shall be referred and resolved by the ICC and that the place of the arbitration shall be Paris, in France and Geneva, in Switzerland respectively.47Conversely, a number of the Model Petroleum agreements from the developed petroleum-producing countries cited so far have provided for the resolution of dispute under the local laws and in adjudicating tribunals established in those countries. For instance, the Norwegian model Petroleum Agreement provides thus; “Unless the Parties agree to bring a dispute before the courts of law, any dispute arising in connection with this Agreement shall be settled by arbitration in Norway pursuant to Norwegian law. The provisions of the Act no. 25 of 14 May 2004 relating to arbitration shall apply…”48
As mentioned above, the provision of settlement of disputes by international arbitration in a petroleum agreement notwithstanding, a party to a petroleum agreement with the Government of Ghana and who wishes to refer and settle any dispute arising from the agreement to the ICSID or the ICC in accordance with the respective agreement may face some obstacles, if some legal imperatives are not met. For instance, the Constitution49 stipulates that; “Any transaction, contract, or undertaking involving the grant of a right or concession by or on behalf of any persons including the Government of Ghana, to any other person or body of person, howsoever described, for the exploitation of any mineral, water or other natural resource of Ghana shall be subject to ratification by parliament.” It is suggested that the word ‘approval’ used in the Constitution50 may be given a liberal interpretation to include ‘ratification’. It will therefore mean that where in both cases parliamentary approval or ratification is not sought, the agreement shall be declared null, void and of no legal effect. The issue of the legal effect of non-compliance with the constitutional imperative for parliamentary approval has become the subject of a number of cases before Ghana’s High Court, leading to their referral to the Supreme Court for interpretation. One of such cases is Attorney General v. Faroe Atlantic Co. Ltd51. Another case in point is Attorney General v. Balkan Energy Ghana Ltd. & Ors52 where the Supreme Court of Ghana held that an Arbitration clause is not separate from and autonomous of the agreement as a whole. The court therefore ordered that the entire agreement be remitted to the High Court to determine the legality or other wise of the agreement for non-compliance with that mandatory constitutional provision.53The reasons underlying that decision was that in the opinion of the court, “an international commercial arbitration draws its life from the transaction whose dispute resolution it deals with. We therefore have difficulty in conceiving of it as a transaction separate and independent of the transaction that has generated the dispute it is required to resolve.” 54
In the respectful opinion of this paper, the above reasoning of the Supreme Court of Ghana relating to the inseparability of arbitration provisions in a substantive agreement can at best be described as per incuriam. First of all, the decision is contrary to the relevant provision of Ghana’s Alternative Dispute Resolution Act55, which states that; “Unless, otherwise agreed by the parties, an arbitration agreement which forms or is intended to form part of another agreement shall not be regarded as invalid, non-existent or in- effective because that other agreement (i.e. the principal agreement) is invalid or did not come into existence or has become in-effective and for that purpose be treated as a distinct agreement.” This provision can indeed be described as a ‘statutory affirmation’ of the aged-old doctrine of ‘separability’ of arbitration agreement contained in the agreement,56 which is said to have “gained a solid footing” in the United States of America (USA) This paper is of the opinion that the Supreme Court did not respectfully need to state that an arbitration provision was not independent of the substantive agreement before going ahead to treat the whole agreement as one. This is because, the authorities are to the effect that a domestic court is vested with jurisdiction to satisfy itself “that the arbitration agreement is [not] null and void or is inoperative or incapable of being performed or that there is in fact no dispute between the parties with regard to the matter referred” before considering whether to grant an application for stay of proceedings to refer an arbitration57 agreement to the agreed arbitration body.58 We must be quick to point out however that, the doctrine of separability of an arbitration agreement contained in a principal agreement has not escaped serious criticisms and demand for its repeal or abrogation. One of such critics is Professor Stephen J. Ware59 in his paper: ‘Employment Arbitration and Voluntary Consent’ Author argue against the separability doctrine as, according to him, no dispute should be sent to arbitration unless the parties have formed an enforceable contract requiring an arbitration of that dispute, which means that the entire agreement has to be examined to ensure that everything contained therein conforms to law. 2.6.2. LACK OF IMPARTIALITY AND EXPERTISE OF LOCAL COURTS It has been said earlier in this paper that some commentators have outlined a number of reasons to justify the provision of international arbitration in petroleum agreements, especially between a developing oil-rich country and an IOC, on the grounds that local courts usually aligned themselves with the executive arm of government and therefore lack neutrality and independence.60 It is the opinion of this paper that, that assertion cannot be supported by a modicum of evidence, at least as far as Ghana is concerned. This is partly because, the Ghana Constitution guarantees the independence of the judiciary thus; “(1) In the exercise of the judicial power of Ghana, the Judiciary, in both its judicial and administrative functions, including financial administration, is subject only to this Constitution and shall not be subject to the control or direction of any person or authority. (2) Neither the President nor Parliament nor any person acting under the authority of the President or Parliament nor any other person whatsoever shall interfered with Judges or judicial officers or other persons exercising judicial power, in the exercise of their judicial functions; and all organs and agencies of the State shall accord to the courts such assistance as the courts may reasonably require to protect the independence, dignity and effectiveness of the courts, subject to this Constitution.”61 Even more significant is the fact that, with the use of the Judicial Review mechanism, the courts in Ghana have, over the years, given countless decisions against the executive. Indeed in one case62 the court declared an act of the executive as contrary to law and therefore void. On the related issue of lack of expertise, it is argued that this justification is not tenable either, in the sense that over the years, the courts have developed specialized courts to deal with special subject matters that may come before them. A case in point is the establishment of the Commercial Courts in Ghana.63 Furthermore, the courts have over the years adjudicated and settled disputes bordering on highly complex technical matters such as engineering construction, medicine, manufacturing usually with the assistance of a referee who is an expert in the particular subject in relation to which the dispute has arisen. The oil industry cannot arguably be said to be any different from the aforementioned subjects. 2.6.3. INTERNATIONAL ADJUDICATING BODIES AND SOVERIEGNTY OF HOST-NATIONS The sovereignty of a State over its natural resources is indeed recognized worldwide, as contained in the United Nations General Assembly Resolution on Permanent Sovereignty particularly over natural resources, thus; “Every state has and shall freely exercise full permanent sovereignty, including possession, use and disposal over all its wealth, natural resources and economic activities.”64 In this regard, the provision in the petroleum agreements executed between Ghana and the IOC that disputes arising from such agreements shall be referred to international arbitration bodies has come under vehement criticisms by a number of commentators, especially from developing oil-rich countries. Among others, these critics argue that the provision for international arbitration in petroleum agreements is an affront to the sovereignty of the host country.65This claim underlies the call by many Ghanaians that “Ghanaian Courts must be the primary arbiter in all disputes relating to natural resources in Ghana although such decisions may be appealable to dispute resolution mechanisms outside of Ghana particularly to regional, continental and global judicial bodies.”66 The Commission’s report to the extent that it creates the impression that Ghanaian Courts are not primary arbiters in matters relating to oil and gas cannot however pass without a comment. As stated earlier in this paper, the Courts of Ghana, especially the High Court and the Supreme Court-in respect of constitutional matters are already rested with jurisdiction to entertain any matter not excluded by the Constitution, disputes pertaining to a petroleum agreement not excepted.67 This is because, the entire oil and gas agreements are subject to the Constitution and the laws of Ghana, their ratification by Parliament notwithstanding. Thus, the Superior Courts in Ghana are not precluded from hearing any matter concerning a breach of any provisions in the various petroleum agreements. For instance, in respect of constitutional issues such as non-compliance with the mandatory provisions of the constitution,68 international Arbitration institutions lack the jurisdiction to adjudicate such constitutional issues, as that is the exclusive preserve of the Supreme Court of Ghana. Indeed, where a party commences proceedings in the High Court of Ghana for the resolution of a dispute under a Petroleum Agreement, which the High Court has jurisdiction to entertain, the authorities are to the effect that the mere fact that the agreement contains a provision that disputes must be submitted to an International Arbitration Centre for resolution in itself does not preclude the High Court to assume jurisdiction to hear the matter. The point being made however, is that the Courts of Ghana, especially the High Court and the Supreme Court-in respect of Constitutional matters-have jurisdiction to entertain the resolution of any matter or dispute pertaining to a petroleum agreement. It is however the duty of the Defendant to file an appropriate application before the Court to stay proceedings of the case and refer same to the Arbitral body agreed between the parties. The point must be stressed however that a Defendant who fails to file the application for stay of proceedings timiously will deny himself the right to have the matter referred to the Arbitral body.69It is however stipulated in Act 798 that; “The grant of an application shall serve as stay of proceedings in the Court.”70 Further, where the State or any other party commences proceedings in the High Court of Ghana for the resolution of a dispute under a petroleum Agreement, the authorities are to the effect that the mere fact that the agreement contains a provision that disputes must, after the initial mechanisms like negotiation, conciliation and expert determination have failed be submitted to an International Arbitration Centre for resolution does not preclude the High Court to assume jurisdiction to hear the matter. We must hastily state however that the above submission must not be taken to mean interference by the Courts with contracts duly executed between parties. Indeed the Courts are admonished severally to “strive to uphold dispute resolution clauses in agreements” as same is considered “to be sound business practice” 71The point being made is that parties cannot contract out of the jurisdiction of the Court in Ghana It is also the submission of this paper that where the laws of Ghana have specifically excluded any matter from being heard other than by the Courts, parties cannot agree to submit it to arbitration. For instance the Alternative Dispute Resolution Act72 (Act 798) the Act inter alia precludes the settlement of disputes relating to the following matters; The national or public interest73 The environment The enforcement and interpretation of the Constitution Thus, even though parties to a petroleum agreement may agree to submit all disputes, including those relating to the environment to arbitration, usually international arbitration, an objection can be raised through the appropriate processes to urge on the Arbitral body to decline jurisdiction as far as the matter before it relates to any of the matters specified under Act 79874 is concerned, as happened in the Bulkan75 case when the Attorney General of Ghana secured a decision by the Arbitration body to refer a constitutional matter to Supreme Court of Ghana. It needs to be emphasised that where a petroleum agreement stipulates that the agreement shall be construed in accordance with a law other than the law of the host country, any dispute arising from the agreement shall be construed in accordance with that law, especially where, as in the case of Ghana, such agreements are subject to Parliamentary approval or ratification as mandated under the Constitution.76 This is because, ratification or approval by parliament of the Agreement does not elevate it to the status of law. We are fortified by this position by the Constitution77, which provides for composition of the laws of Ghana which clearly does not include ratified or approved agreements. Indeed, even if the ratified or approved agreements can be given a liberal interpretation, which we deny, to include such ratified petroleum agreements, it will still be subject to the Constitution which is the supreme law of the land and which renders void all laws, however described if it is inconsistent with any of the provisions of the Constitution.78 Additionally, this paper disagrees with the Commission’s recommendation that decisions of Ghanaian courts relating to natural resources “…may be appealable to dispute resolution mechanisms outside of Ghana particularly to regional, continental and global judicial bodies.” In our respectful opinion, to subject the final decision of Ghanaian Courts relating to the extraction of natural resources in Ghana to other adjudicating bodies outside Ghana’s jurisdiction is itself an affront to the sovereignty of Ghana. Even more serious is the fact that the Commission seems to advocate the submission of all decisions of Ghanaian Courts bordering on the enforcement and interpretation of the Constitution, the national interest and the environment but related to natural resources without exception to foreign adjudicating bodies, as appellate bodies of Ghanaian Courts’ decisions. Indeed, the Commission’s said recommendation flies in the face of section 1 of the Alternative Dispute Resolution Act79. In the respectful opinion of this paper these concerns and recommendations expressed by the Constitutional Review Commission do not only appear to be belated but also untenable, as the courts of Ghana are already primary arbiters in all disputes, including those related to natural resources except where the Constitution has assigned the jurisdiction to adjudicate on specific matters to other adjudicating institutions and also because the jurisdiction of Ghanaian courts emanating from the sovereign will of the citizens of Ghana cannot be subservient to another adjudicating body outside Ghana. 2.6.4. INTERNATIONAL ARBITRATION AND NON-COMMERCIAL ISSUES International arbitration usually deals with commercial matters directly relating to the agreement and its performance. It is well known however that in the course of the extraction of natural resources, especially in developing resource-endowed countries issues like human rights abuse, environmental and indeed constitutional and political issues may ensue. Thus, even after the resolution of the commercial aspect of the dispute persons adversely affected by the activities of the IOC will then have to resort to the local courts for remedies, which may involve huge cost to those affected persons who may not be sufficiently resourced to commence and maintain a suit against these powerful International Oil companies. These challenges could be avoided if the parties submit to the jurisdiction of the court and insists that under the laws of Ghana the courts are vested with jurisdiction to deal with such matters. 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