Data

Date:: 04-02-2020
Country:: Arbitral Award
Number:: 19869/MCP/DDA
Court:: ICC International Court of Arbitration 19869
Parties:: Yemen v. Canadian Nexen Petroleum Yemen et al.

Keywords

STATE CONTRACTS - LONG-TERM CONTRACTS - EXPLORATION AND EXPLOITATION AGREEMENT - BETWEEN THE REPUBLIC OF YEMEN AND A GROUP OF COMPANIES BASED IN DIFFERENT STATES (YEMEN, LEBANON, UNITED STATES AND CARRIBEAN ISLANDS) - CHOICE OF LAW CLAUSE IN FAVOUR OF "PRINCIPLES OF LAW COMMON TO THE YEMEN, CANADA AND LEBANON AND IN THE ABSENCE OF SUCH COMMON PRINCIPLES THEN IN CONFORMITY WITH THE PRINCIPLES OF LAW NORMALLY RECOGNIZED BY NATIONS IN GENERAL, INCLUDING THOSE WHICH HAVE BEEN APPLIED BY INTERNATIONAL TRIBUNALS" - REFERENCE BY THE ARBITRAL TRIIBUNAL TO THE UNIDROIT PRINCIPLES GIVEN THE LACK OF UNIFORMITY BETWEEN YEMENI, CANADIAN AND LEBANESE LAW.

LIMITATION OF THE RIGHT TO ACTION - NUMEROUS CLAIMS TIME-BARRED IN ACCORDANCE WITH THE LIMITATION PERIODS UNDER ARTICLE 10.2 OF THE UNIDROIT PRINCIPLES

REQUEST FOR SPECIFIC PERFORMANCE BY CLAIMANT - REFERENCE BY CLAIMANT TO ART. 7.2.2 UNIDROIT PRINCIPLES WHICH RECOGNIZE SPECIFIC PERFORMANCE AND DAMAGES AS TWO TYPES OF REMEDIES PRINCIPALLY AVAILABLE TO AN AGGRIEVED PARTY - RESPONDENTS BY REFERRING TO THE UNIDROIT PRINCIPLES OBJECTED THAT, IF A CONTRACT IS VOID, THE PROBLEM OF ENFORCEABILITY OF THE PERFORMANCE CANNOT ARISE (COMMENT 3 TO ART. 7.2.2)

ARBITRAL TRIBUNAL AFFIRMING THAT UNDER THE APPLICABLE LAW (ARTS. 7.3.5, 7.4.1, 7.4.2 AND 7.4.3 UNIDROIT PRINCIPLES) (I) CLAIMANT'S DAMAGES CLAIMS WERE NOT TIME BARRED AND (II) THE AGGRIEVED PARTY HAD A RIGHT TO FULL COMPENSATION, INCLUDING FUTURE HARM IF CERTAIN

CALCULATION OF THE APPLICABLE INTEREST RATE – REFERENCE BY THE ARBITRAL TRIBUNAL TO ARTS. 7.4.9 AND 7.4.10 UNIDROIT PRINCIPLES - AVERAGE BANK SHORT-TERM LENDING RATE TO PRIME BORROWERS PREVAILING FOR THE CURRENCY OF PAYMENT AT THE PLACE FOR PAYMENT - WHERE NO SUCH RATE EXISTS AT THAT PLACE, THE SAME RATE IN THE STATE OF THE CURRENCY OF PAYMENT

Abstract

On 15 September 1986 the Ministry of Oil and Minerals of the Republic of Yemen ("Claimant") concluded an agreement for petroleum exploration and production with some local and foreign companies from Lebanon, United States and Carribean ("Respondents"). The parties agreed on a contract duration of 20 years starting from the date of declaration of the ''first Commercial Discovery in the Contract Area", that was 17 December 1991. The oil production started in 1993. Despite the Parties' discussions to extend the 20-year term of the agreement, it expired on 17 December 2011.

The contract included an arbitration clause in favor of an ICC arbitration based in Paris and a choice of law clause in favor of the application of "principles of law common to the PDRY [People's Democratic Republic of Yemen], Canada and Lebanon and in the absence of such common principles then in conformity with the principles of law normally recognized by nations in general, including those which have been applied by International Tribunals".

Claimant initiated arbitration proceedings since, on the expiry of the agreement on 17 December 2011, it took back from Respondents a block with multiple problems, including dangerous and deficient wells, deficient or dangerous items of equipment and facilities, without access to the integrated management systems and to a proper asset register. Despite making huge profits during the contract's 20-year term, Respondents failed to make the necessary investments to keep the block in "optimal working order" in accordance with "generally accepted standards of the Petroleum Industry" and the agreement.

On the basis of the above, Claimant seeks specific performanc.e of all of Respondents' obligations under the agreement and, to the extent that this is not available, compensation.

On their turn, Respondents counterclaimed that Claimant's claims were unsustainable for the following tlhree threshold reasons: 1) many of its claims were time-barred long ago under any potentially applicable limitation period; 2) Claimant had long ago waived any right to raise and was now estopped from raising many of its present claims and 3) many of its remaining claims were explicitly settled through a Settlement Agreement concluded between the parties in March 1996.

The Arbitral Tribunal unanimously decided that the UNIDROIT Principles were applicable in respect of Respondents' time-bar defence and the majority of the Arbitral Tribunal decided that some of the Claimant's claims were time-barred in accordance with the limitation periods under Article 10.2 of the UNIDROIT Principles.

As to Claimant' request for specific performance of the agreement's obligations together with a substantial damages award, given the lack of uniformity between Yemeni, Canadian and Lebanese law, the Claimant relied on the UNIDROIT Principles, pointing out that the UNIDROIT Principles (art. 7.2.2) recognize specific performance and damages as two types of remedies principally available to an aggrieved party. Respondents objected that, on the basis of Comment 3 to Art. 7.2.2 of the UNIDROIT Principles, if a contract is void, the problem of enforceability of the performance cannot arise, thus recognizing that an obligation to perform cannot exist without a valid, extant contract. Therefore, according to the Respondents, the Claimant's request for specific performance is flawed and should be dismissed.

Moreover, Claimant relied on arts. 7.3.5 (2), 7.4.1 and 7.4.2(1) UNIDROIT Principles in order to affirm that the aim of an award of damages under the UNIDROIT Principles is to put the aggrieved party into the position it would have been in, if the contract had been performed according to its terms, and to compensate that party even for future harm, that is, harm that has not yet occurred. On the opposite, Respondents affirmed that, under the principle of certainty of actual damage incurred recognized by Article 7.4.3 (1) of the UNIDROIT Principles, Claimant was not entitled to an award of damages regarding un-incurred costs, or future damages, which may or may not be incurred in the future. Therefore, the Claimant should only be entitled to recover the actual loss suffered.

The Tribunal agreed with the Parties in that Yemeni, Canadian and Lebanese law are not uniform regarding the application of damages, and therefore the Tribunal decided to apply the UNIDROIT Principles. The Tribunal concluded that under the applicable law (arts. 7.3.5, 7.4.1, 7.4.2 and 7.4.3 UNIDROIT Principles): (i) the fact that the agreement expired in 2011 did not affect the Claimant's claims for damages; and (ii) the aggrieved party had a right to full compensation, including future harm, inasmuch as it was certain.

As to the applicable interest rate, the Arbitral Tribunal by applying the UNIDROIT Principles (art. 7.4.9 and 7.4.10), which provide for interest on damages for the non-performance of monetary obligations, and a way to calculate the applicable rate, stated that the rate shall be calculated as follows: (i) the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment; (ii) or where no such rate exists at that place, the same rate in the State of the currency of payment.

Fulltext

}}

Source

}}