- Arbitral Award
- ICC International Court of Arbitration, Paris 14108
STATE CONTRACTS - LONG-TERM CONTRACTS - PRODUCTION SHARING AGREEMENT TO EXPLORE AND DEVELOP GEOLOGICAL RESOURCES - BETWEEN A UNITED STATES JOINT-VENTURE AND A FOREIGN STATE - PARTIES' CHOICE AS APPLICABLE LAW THE LAW OF THE STATE TOGETHER WITH “PRINCIPLES OF LAW COMMON TO THE LAW OF [THE STATE] AND THE UNITED STATES AND, IN THE ABSENCE OF SUCH COMMON PRINCIPLES, [...] PRINCIPLES OF LAW NORMALLY RECOGNIZED BY CIVILIZED NATIONS IN GENERAL, INCLUDING THOSE WHICH HAVE BEEN APPLIED BY INTERNATIONAL TRIBUNALS”.
PROHIBITION OF INCONSISTENT BEHAVIOUR - REFERENCE TO ARTICLE 1.8 UNIDROIT PRINCIPLES WHICH ACCORDING TO ARBITRAL TRIBUNAL “OFFER REASONABLE SOLUTIONS TO RESPOND TO THE NEEDS OF THE MODERN ECONOMY IN LIGHT OF THE EXPERIENCE OF SOME OF THE MAJOR LEGAL SYSTEMS”.
LIMITATION PERIOD - DAY FROM WHICH PERIOD STARTS TO RUN - APPLICABLE LAW UNCLEAR - REFERENCE TO ARTICLE 10.2 UNIDROIT PRINCIPLES
Claimant, a US joint-venture, and Respondent, State W, entered into a Production Sharing Agreement (hereinafter “PSA”) to explore and develop the geological resources of a certain area for a period of twenty years. Pursuant to the PSA, the applicable law was the law of State W; however, the Arbitral Tribunal could also take into consideration “principles of law common to State W and the United States and, in the absence of such common principles, [...] principles of law normally recognized by civilized nations in general, including those which have been applied by International Tribunals”.
One year before the contractual expiry of the PSA the parties concluded and signed a five-year Renewal and Extension Agreement (hereinafter “REA”), that would become binding upon exhaustion of constitutional procedures. Following the REA’s signing and repeated assurances by State W representatives that an extension had been granted, Claimant commenced a new exploration program. However, Parliament of State W refused to ratify the REA and Claimant was evicted from the exploration area.
Claimant commenced ICC arbitration (as provided in the PSA), arguing that the PSA was validly extended by the REA and seeking damages for breach of the five-years extension.
The Arbitral Tribunal held that, lacking ratification of the REA by State W’s Parliament, the PSA was not extended, so that Claimant could not claim damages for breach of that extension. However, Respondent’s ambiguous and contradictory behaviour amounted to a violation of its duty of good faith, which is recognized by both State W and United States law. The Arbitral Tribunal added that, since State W's law was silent as to the precise content of such duty of good faith and did not recognize a doctrine of estoppel, the Tribunal was entitled to have regard to UNIDROIT Principles which, in its view, “offer reasonable solutions to respond to the needs of the modern economy in light of the experience of some of the major legal systems”. Thus, in the light of Art. 1.8 UNIDROIT Principles, Respondent must be held responsible for the costs of the exploration work performed by Claimant in reliance of State W’s behaviour.
The Arbitral Tribunal also dismissed Respondent’s counterclaims concerning Claimant's failure to withhold and pay certain taxes in respect of its local employees on the ground, among others, that they were time-barred. The Arbitral Tribunal applied the five-year limitation period provided for in State W's law rather than the three-year limitation period in the UNIDROIT Principles (Art. 10.2), reasoning that the latter could not apply when the applicable law clearly established specific rules. However, the Arbitral Tribunal did apply the UNIDROIT Principles (Art. 10.2) subsidiarily in respect of the question of the moment in which the limitation period started to run, because of a lack of clarity of State W's law as regards this specific issue.
Excerpt in J.J Arnaldez - Y. Derains - D. Hascher (eds), Collection of ICC Arbitral Awards, Kluwer Law International 2013, 661-720}}
Published in English (excerpt):
- in ICC International Court of Arbitration Bulletin, Vol. 25, No. 2, 2014, pp. 67 ss.
- in J.J Arnaldez - Y. Derains - D. Hascher (eds), Collection of ICC Arbitral Awards 2208-2011, Kluwer Law International 2013, pp. 661-720
- in A. Jan van den Berg (ed), Yearbook Commercial Arbitration 2011 – Vol. XXXVI (Kluwer Law International 2011), pp. 135-201}}