ICSID tribunal dismisses RSM Production Corporation’s claim against Grenada

By Damon Vis-Dunbar
26 March 2009

An American businessman has failed in his claim against Grenada under a 1996 oil and gas agreement, in a contract dispute conducted before an ICSID tribunal.

Initiated in 2005, the ICSID claim was one of a host of legal avenues pursued by Jack J. Grynberg, the president and CEO of RSM Production Corporation, in an effort gain an exploration license for oil and gas reserves that may lie off the coast of Grenada.

RSM’s claim was pursuant to an ICSID arbitration clause in an agreement between RSM and Grenada, which prescribes the laws of Grenada as the applicable law for settling disputes.  In its claim, RSM sought an order declaring that the 1996 agreement was still in force and that Grenada must grant RSM a license, or alternatively financial damages which RSM estimated would exceed US$500 million.

The 1996 agreement between RSM and Grenada established a long-term arrangement for the exploration, and potential extraction, of oil and gas reserves. As a first step, RSM was granted an opportunity to apply for an exploration license within 90 days of signing the agreement, which Grenada was obligated to award.

However, a broadly worded force majeure clause, which made implicit reference to Grenada’s long-standing negotiations with Venezuela and Trinidad & Tobago over maritime boundaries, allowed RSM to delay its application for the exploration license. Notably, the clause also called on RSM to “take all reasonable steps to remove the cause” of the force majeure.

Fourteen days after the agreement was inked, RSM notified Grenada that it was invoking force majeure, thereby stopping the clock on the 90-day period for applying for an exploration license. RSM would maintain force majeure status for the next 8 years, a period in which Mr. Grynberg played a dubious role in Grenada’s negotiations with Venezuela and Trinidad & Tobago over maritime boundaries.

At a contested point in early 2004, RSM notified Grenada that it was revoking force majeure status, effectively resuming the 90-day countdown that RSM had available to apply for an exploration license.

Indeed, the critical point of dispute is when RSM ended its declaration of force majeure, and in turn, at what point the 90-day countdown resumed. Confusing matters, two letters from RSM revoking force majeure were sent on different dates to different government bodies; moreover, while the second letter was dated 27 February 2004, it wasn’t received until mid-April.

Ultimately, the Tribunal’s 13 March 2009 ruling held RSM to a strict 90-day period, including the 14 days that lapsed in 1996 between signing the agreement and RSM’s notice of force majeure, and resuming in January 2004 with RSM’s first letter revoking force majeure. As a result, the Tribunal determined that the 1996 agreement either lapsed as of end-of March 2004, when the 90-day period ran out, or was lawfully terminated by Grenada in 2005.

While the Tribunal supported its decision using precedents set under English law (Grenadian law was the applicable law, but the parties agreed that, with respect to the issues in dispute, English common law was the same as Grenadian law) it tested its conclusion against the principles of international law. Applying the commonly agreed methods for interpreting treaties under international law, the Tribunal concluded that it would have come to the same decision.

Grenada charges investor with illegal misrepresentation

In a counterclaim, Grenada charged RSM with illegal misrepresentation under Grenadian law, including the allegation that the company exaggerated the financial resources at its disposal, falsely indicated that it would begin work on certain aspects of the agreement immediately, and hid the fact that it intended to ‘farm-out’ the activities under the agreement to larger oil and gas companies.

Grenada also accused Mr. Grynberg of misrepresenting himself as an expert in maritime boundary negotiations.

These counterclaims accompanied sharp criticism of Mr. Grynberg’s business strategy, which Grenada’s counsel claimed took on a distinct modus operandi:

“The first step in this modus operandi is to ‘lock-up’ large, and often disputed, territories for long periods of time with agreements that require little of nothing from Mr. Grynberg (frequently because of force majeure notices). He appears to target governments that lack experience in the oil and gas business, using a combination of slick salesmanship, glowing promises and economic threats to procure such agreements. Then, when the time and market conditions are right, he either ‘farms out’ his contracts to serious players; and/or sues everyone in sight.”

The Tribunal, however, rejected the counterclaim, finding that in some instances RSM had not made the alleged misrepresentations and in others Mr. Grynberg had genuinely believed what he was saying was true, even though it was not.

The Tribunal concurred that Mr. Grynberg was not an expert in maritime boundary negotiations, describing his approach as “secretive, unilateral, unauthorised, crude … backed up with wild threats and vexatious litigation if unsuccessful …”

However, despite the damning assessment of Mr. Grynberg’s involvement in the maritime boundary negotiations, these actions did not constitute fraudulent misrepresentations, due to the fact that Mr. Grynberg subjectively believed them to be true.

The Tribunal would also go on to reject the other counterclaims related to misrepresentation. Although RSM often offered vague or contradictory statements with respect to its financial resources, these fell short of the level required to constitute illegal misrepresentation under Grenadian law.

Having dismissed RSM’s substantive claims and Grenada’s counterclaims, the Tribunal would order the parties to bear their own legal costs, and split the costs of the arbitration.

RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14, is available here: http://ita.law.uvic.ca/documents/RSMvGrenadaAward.pdf