1.0. INTRODUCTION “Ghanaian courts must be the primary arbiter in all disputes
relating to natural resources in Ghana although decisions
may be appealable to dispute resolution mechanisms outside
of Ghana particularly to regional, continental and global judicial
Sometime in June 2007, petroleum was discovered in commercial quantities off the West Coast of Ghana, referred to as the Jubilee Fields. However, the first production of oil in the Jubilee fields occurred in December 2010. The Jubilee Field is estimated to have about 80 million barrels of proven reserves and upside potential of about 3 billion barrels of oil2. It has also been said that when considered as a proportion of Ghana’s annual income, production from the Jubilee Field at its peak is estimated to generate up to 30% of the government’s income, if pegged at a price of US$75/barrel.3 Ghana’s oil reserves can be said to be relatively small on a global scale as its potential three billion barrels are significantly below those of major oil producers such as Saudi Arabia with 265 billion, Canada with 175 billion, Venezuela with 95 billion and Nigeria with 38 billion.
Prior to the discovery, various petroleum agreements were executed between the Republic of Ghana and the International Oil Companies (IOCs) containing the terms and conditions for the exploration, development and production of petroleum in the country. One of such agreements is the Petroleum Agreement between the Republic of Ghana, Ghana National Petroleum Corporation, Kosmos Energy Ghana, H.C and the E.O. Group. One of the fundamental provisions of the agreement is article 24 which deals with dispute resolution mechanisms adopted by the parties to the agreement. It is provided under the said article that where the parties fail to resolve a dispute arising from the agreement amicably, the dispute shall be resolved through international arbitration in London.
Some commentators and stakeholders have expressed their disapproval of the practice where resource-endowed but poor countries consent to a provision in agreements for the extraction of natural resources in such countries that any disputes arising from the agreement shall be resolved by international arbitration.
1.2. DEFINITION AND SCOPE The occurrence of dispute is as old as human existence itself. A dispute is generally defined as “a disagreement on a point of law or fact, a conflict of legal views or interests between parties.4 Over the years, various methods have been employed by humans to resolve disputes whenever they occur. These methods have included the use of brute force, combat, (war) litigation, Alternative Dispute Resolution (ADR) comprising but not limited to Arbitration, Mediation, Conciliation/Negotiation and Expert Determination. It must be stated however that the first two (2) methods of dispute resolution are rarely employed currently. In relation to commercial disputes in general, the most popular methods for the resolution of such disputes and in particular, disputes in the oil and gas sector are litigation and the body of methods popularly referred to as Alternative Dispute Resolution (ADR), which we have outlined above.
1.3. STATEMENT OF THE RESAERCH PROBLEM This paper will seek to inquire and resolve the issue of whether Courts and other adjudicating bodies in Ghana are vested with the jurisdiction to settle or resolve all matters and disputes relating to natural resources with special reference to petroleum. The paper will also inquire into whether international arbitration relating to natural resource extraction is an affront to the sovereignty of the host-country.
In recent times, the issue of whether or not natural resource rich- countries should be the primary arbiters for the resolution of disputes relating to natural resources has attracted the attention of many commentators and stakeholders, in especially developing countries endowed with natural resources. The latest advocate of such a crusade is the Constitutional Review Commission of Ghana, as contained in its recommendations.5 Submitted to the government of Ghana. According to the Commission, the exercise of Ghana’s sovereignty over and interest in its natural resources cannot be complete without making the Courts of Ghana, primary arbiters in the resolution of disputes arising from the extraction and utilization of Ghana’s natural resources.
The paper will show that the courts of Ghana are already vested with jurisdiction to entertain any matter that may be brought before it, including disputes arising from and relating to the extraction of petroleum. The paper will however conclude that where the host State negotiators find it appropriate to consider arbitration mechanism instead of litigation in the domestic Court, then they ought to ensure that domestic instead of international arbitration is provided for in the agreement. In this regard, this paper will provide a draft domestic arbitration agreement or clause as a guide to the host state negotiators.
1.3 SIGNIFICANCE/ OBJECTIVE OF THE INQUIRY The fundamental objective of the paper is to proffer credible and empirical evidence to establish the position that Ghanaian Courts are vested with jurisdiction to entertain all matters or disputes except where the 1992 has assigned jurisdiction in some special matters to other institutions. It will be shown further that submission of disputes to international arbitration is an affront to the sovereignty of resource-rich but poor countries and that where it becomes necessary for host state negotiators to prefer arbitration mechanism to domestic courts, such negotiators ought to insist on domestic arbitration and may be guided by the draft arbitration clause that will be provided at the end of this paper. In the view of the paper, this project will serve as a process for the strengthening of the foundation for further inquiry by researchers and indeed that all stakeholders may be interested in building on that foundation. It also seeks to serve as a beacon for law and policy makers, as well as host state negotiators to fashion out appropriate legal and institutional frameworks geared towards total domestication of resolution of appropriate disputes relating to natural resource extraction.
1.4 METHODOLOGY This section looks at the methodology employed to achieve the objective of the study, basically focusing on secondary materials.
1.4.1 RESEARCH DESIGN/SOURCE OF DATA Among the various research designs, case studies are frequently regarded as using both quantitative and qualitative research and a combination of both approaches. This study entitled “Current Approaches To Settlement of Dispute In the Oil and Gas Sector: A Case for Domestication of Dispute Resolution in the Upstream Oil and Gas Sector in Ghana” is an exploratory research that attempts to accumulate existing information and data regarding the issue whether or not Ghanaian Courts are vested with jurisdiction to entertain disputes relating to the extraction of petroleum in Ghana and whether submission of such disputes is not an affront to the sovereignty of the resource-rich but poor countries.
The paper will adopt secondary research methods as the dominant tool for the enquiry. To this end, the paper will make extensive references to secondary sources including the Laws of Ghana, scholarly books, articles, and Journals on the subject. Materials meant for secondary data also include various publications and reports regarding the resolution of disputes relating to the extraction of natural resources in resource-endowed countries, with special reference to Ghana.
2.0. RELATED LITERATURE REVIEW 2.1. TYPES OF DISPUTE IN THE OIL AND GAS INDUSTRY
Disputes relating to petroleum activities may border on matters such as:6
International Maritime Boundary Disputes, for example the Bukasso
Peninsular between Nigeria and Cameroon, Bangladesh and Myarimar over a Bay said to be rich in oil and gas, Barbados and Trinidad and Tobago and between Cuyana and Surinam.
It is significant to state that nearly all transactions in the petroleum industry, especially in developing petroleum resource-rich countries are international in nature. The proponents for the resolution of disputes ensuing from the extraction of natural resources by way of international arbitration argue, quite strongly, that in most developing resource-rich countries, such as Ghana, nearly all the companies engaged in the extraction of petroleum and also minerals on a large scale are international companies, in the sense that their “owners,” controllers or investors are foreigners, even though they may set up subsidiaries to engage in the extraction of natural resources in Ghana and therefore in their view disputes between such companies and the host state ought to be settled by international adjudicating bodies.
The huge capital-intensive nature of the extraction of natural resources, especially petroleum and minerals coupled with the rather derogatory argument that the Courts in the developing resource-rich countries like Ghana cannot be either trusted or lack the capacity and the know-how to adjudicate disputes relating to natural resources, have also been some of the reasons given by the IOCs for the provision of international arbitration in petroleum agreements.
In recent times, some commentators7 have strongly argued against the submission of an oil-rich country, (especially developing Countries) to international Arbitration and other foreign dispute resolution centres. They make the point that the insertion in a contract between the State and the international Oil Company (IOCs) for reference and submission to international dispute resolution Centers outside the jurisdiction of the host State is an affront to the sovereignty of the people who are the owners of the oil and gas reserves and resources. Others have also argued that in view of the fact that such international dispute resolution avenues consider only the commercial aspect of the contract without necessarily considering and addressing other important issues like human rights abuse, environmental rights and even political issues does not make International Arbitration Centers the ideal avenues for settlement of such disputes, as far as developing Countries are concerned.
2.2.0. TYPES OF DISPUTE RESOLUTION MECHANISM
Generally, 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. However, despite the increasing use of international commercial arbitration, litigation in the host nation courts is said to be “probably… the major international dispute resolution process in use.”8
2.2.2. EXPERT DETERMINATION
Dispute relating to technical aspects of the contract, for example whether specification of a particular product has been met; whether a specific test service is required; issues about cost of particular operations; the value of crude and dispute about fiscal policies are best resolved through expert determination. Normally the expert is a disinterested third party with special expertise in the subject of dispute. It is also faster and less costly than arbitration.
2.2.3. SENIOR EXECUTIVE NEGOTIATION
This method allows the senior executives to try and resolve a dispute at a meeting. The meeting is usually facilitated by a Conciliator or Mediator. It enables the parties to assess the strength and weakness of their respective cases. In the event that settlement fails, either party can proceed to another intermediate dispute resolution step.
2.2.4. ARBITRATION Arbitration is one of the processes used in petroleum contracts for the resolution of disputes that have not otherwise been resolved by way of the above-stated mechanisms. Arbitration is a step short of actual court action. For oil companies, it carries two main advantages over an actual court system. First, it is not in the court of the country that they have a dispute with. Second, arbitration procedures are, in theory, confidential.
There are a number of recognised international arbitration organisations each of which have a set of rules that will apply to the arbitration process. These include UNCITRAL Rules, the London Court of International Arbitration Rules ("LCIA"), the International Chamber of Commerce Rules ("ICC") and the rules of the International Centre for Settlement of Investment Disputes ("ICSID"). In principle, a "neutral" venue ought to be chosen, being one that is not in the host country with which the contract is made and not in the country from which the relevant oil company or its parent organisation comes from. Choices of independent venues might include, for example, Paris, London or Stockholm. It is important to note however that this practice is more pronounced in transactions between developing oil-rich countries than in developed oil-rich countries such as the United Kingdom (UK), Norway and the United States of America (US) as will be demonstrated later in this paper.
In recent time, the concept of dispute management is also becoming popular in the oil and gas industry in particular. This concept involves collaboration and negotiation, assisted consensual non-binding processes in addition to the process whereby the parties may turn a blind-eye to the occurrence of the dispute and expect the perpetrator to rectify the cause and or the consequences of the breach giving rise to dispute.9 Additionally, some countries such the UK have established
2.3. INTERNATIONAL PLATFORM FOR THE RESOLUTION OF DISPUTES IN THE OIL AND GAS INDUSTRY. The Constitution10 enjoins the Government of Ghana in its dealings with other nations to endeavour to promote respect for international law, treaty obligations and the settlement of international disputes by peaceful means. The Government of Ghana is empowered under the Constitution11 to “conduct its affairs in consonance with the accepted principles of public international law and diplomacy consistent with the national interest of Ghana.”12 The Government of Ghana is further empowered by the constition to execute or cause to be executed treaties, agreements or conventions in the name of Ghana, subject to ratification by an Act of Parliament. The above provisions impose a constitutional imperative on the Government of Ghana, that in its dealings with other nations (and if we may be permitted to add other foreign investors) not only to execute agreements with them but also ensure total compliance with the terms and intendment of those agreements, treaties and conventions ratified by Ghana, subject to the national interest and the laws of Ghana.
One of the most important United Nations’ Conventions which over the years continues to serve as an effective means for resolution of disputes in the oil and gas sector is the United Nations Convention On the Law of the Sea, commonly known as UNCLOS III.13 Under the Convention,14 the sovereignty of a coastal State extends beyond its land territory and internal waters to an adjacent belt of the sea, described as the territorial sea. It is said that the first session of this U.N Convention began in Caracas in 1974, however discussions as to dispute resolution processes continued until the convention was approved in 1982.15 The Convention further provides that States that are parties to the convention “shall settle any disputes between them concerning the interpretation or application of this convention by peaceful means.”16It is further stipulated under the Convention that States which are parties to the Convention shall be free to choose from one of the methods of dispute settlement set out in the annexes to the convention which include; Conciliation, Arbitration and special Arbitration. It is clear from the foregoing that the Convention deals exclusively with disputes largely relating to the oil and gas industry touching on jurisdictional dispute, between member states, especially relating to matters such as maritime, environment, and pollution.
The legitimate question that arises immediately is; ‘How are disputes between an individual investor, for example, International Oil Company (IOC) and Host State relating to the oil and gas sector resolved?’ Before we attempt to answer the question, it is important to highlight the antecedence to the recognition of the rights of an investor to the resolution of a dispute between it and the Host State.
It is well noted by Rudolf and Christoph that; “Under traditional international law, investors did not have direct access to international remedies to pursue claims against foreign states for violation of their rights. They depended on diplomatic protection by their home states.”17This fundamental principle re-echoes the well articulated statement of international law in the oft-cited case of Mavrommatis Palestine Concessions thus: “It is an elementary principle of international law that a State is entitled to protect its subject, when injured by acts contrary to international law committed by another state, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights-its right to ensure, in the person of its subjects, respect for the rules of international law.” 18 It is important at this stage to highlight some of the well-known limitations to the practice of dispute resolution between an individual investor and the host State, otherwise known as ‘diplomatic protection.’ These limitations include the fact that the commencement of the proceedings for the resolution of the dispute depends on the political discretion of that individual investor’s government. Again, the state may decide to withdraw the investor’s claim or even accept a reduced claim.19It must be stated however that in terms of disputes between states pertaining to the ownership of petroleum resources, the mechanism of diplomatic protection is still relevant.
As will be shown later in this paper in view of the limitations referred to above, most agreements between a state and an investor of another state contain international Arbitration clause for the resolution of disputes that may ensue between the parties. Many reasons have been assigned for the preference by the IOCs in particular for disputes relating to oil and gas extraction, to be settled by a foreign adjudicating body. These reasons include;
Lack of impartiality of the local Courts and adjudicating bodies. Many commentators, mostly from the developed resource-rich countries have supported the assertion by the IOCs that the local courts lack independence and thus cannot be trusted to render an impartial decision in favour of the host state. According to Rudolf et al, “In many countries, an independent judiciary cannot be taken for granted and executive interventions in court proceedings or a sense of judicial loyalty to the forum state are likely to influence the outcome of proceedings…particularly where large amounts are involved.”20 Thus, for most of the IOCs, the local courts may have the propensity to exhibit xenophobic tendencies against a foreign company.21 This claim is said to have led Chevron to have instituted an arbitration proceeding against Equador based on Chevron’s claim that”…Equador’s judicial system is incapable of functioning independently of political influence…”
In addition, submission of disputes ensuing from oil and gas transactions, especially in resource-rich developing countries to international adjudicating bodies is justified by some commentators and the OICs on the ground that “domestic courts may be bound to apply domestic law even if it is at odds with international legal rules protecting legal rights of investors.”22
It has also been said that the local courts ought not be the venue for the resolution of settlement of disputes arising from oil and gas transactions in oil-rich developing countries because such courts…” lack the expertise to deal with the sometimes highly technical questions of international investment law.”23
Another reason assigned for the preference of international adjudicating bodies over local adjudicating tribunals is the claim that the local courts may resort to some legal principles such as the act-of-state doctrine which “enjoins courts from examining the legality of official acts of foreign states in their own territory.”24
Indeed not only the competence and impartiality of the local courts are discounted by the IOCs, but also local dispute resolution mechanisms like arbitration and mediation systems. For instance, it has been said that in most of the oil-rich underdeveloped countries, there is “non-existence of a pool of skilled and qualified persons to act as neutrals…”25
2.4. SETTLEMENT OF OIL AND GAS DISPUTES IN GHANA In contrast to the above claims, strong arguments have been marshaled by some commentators and stakeholders, mostly from developing resource-endowed countries, in favour of adjudication of disputes arising from oil and gas transactions in the host state. They argue, that submission of oil and gas disputes to international adjudicating bodies is an affront to and indeed a violation of the internationally accepted principle of sovereignty of the host state over its natural resources.26 One of such stakeholders is Ghana’s Constitutional Review Commission. The Commission in its Final Report27 reflected these concerns to the effect 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.” The Constitution,28has vested the judiciary with the jurisdiction to resolve disputes of any matter, except where the Constitution itself has given the jurisdiction to resolve any particular matter to another institution or body. It is significant to note also that under the Constitution,29 justice emanates from the people and therefore must be exercised in a manner that ensures their participation, which also involves resort to other domestic methods of dispute resolution that are swift, less technical, cumbersome, costly and indeed ensures finality.
It is in this regard that the judiciary itself has instituted measures to ensure that certain matters are submitted to, what is now known as the judicial sponsored Alternative Dispute Resolution (ADR), even regarding matters that the judiciary has jurisdiction to resolve. Again, the setting up of the Commercial High Court30 which is being replicated in the other Regions in Ghana, is also significant. Interestingly, the fundamental role of the Commercial Court is to resolve, inter alia, disputes of commercial nature by resort to compulsory mediation processes for the resolution of disputes pending before the Commercial Court.
In addition, the Alternative Dispute Resolution Act,31 also attests to the recognition by Ghana, that with the exception of the under-listed matters, not every dispute can be settled by ADR to achieve justice by all concerned. The said matters32 include;
The national or public interest
The enforcement and interpretation of the Constitution.
This implies that any other matter which has not been excluded by law for settlement by way of ADR may be settled by the process of ADR. The Act defines33 Alternative Dispute Resolution to mean description of methods of resolving collective description of disputes otherwise than through the normal trial process. Significantly, under the Act34, parties to an agreement and litigating in a dispute in Court can consent to a stay of proceedings and to resolve the matter by way of arbitration in accordance with the agreement. In the same vein, the Court can refer the matter to Arbitration with the consent of the parties even, though no such agreement between the parties. Again, the establishment of an Alternative Dispute Resolution Centre under the Act35 is also commendable. This is because, as already indicated, parties to a matter, especially foreign investors have cited the non-existence of a formidable Centre for resolution of investment issues which involve huge capital or other resources, to justify their choice of foreign Arbitration and other Dispute resolution Centre for the settlement of disputes that may arise between them and the State or individuals.