{"id":437,"date":"2009-11-01T19:00:00","date_gmt":"2009-11-02T00:00:00","guid":{"rendered":"http:\/\/itn.mattrock.ca\/2009\/11\/01\/f-w-oil-interests-inc-v-republic-of-trinidad-tobago-a-%e2%80%9crelatively-mundane-dispute%e2%80%9d-after-all\/"},"modified":"2013-02-01T03:50:10","modified_gmt":"2013-02-01T09:50:10","slug":"f-w-oil-interests-inc-v-republic-of-trinidad-amp-tobago-a-relatively-mundane-dispute-after-all","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2009\/11\/01\/f-w-oil-interests-inc-v-republic-of-trinidad-amp-tobago-a-relatively-mundane-dispute-after-all\/","title":{"rendered":"F-W Oil Interests Inc. v. Republic of Trinidad & Tobago: A “Relatively Mundane Dispute” after all?"},"content":{"rendered":"

By Elizabeth Whitsitt<\/span><\/p>\n

November 3, 2009<\/span><\/p>\n

More than three years ago, on March 3, 2006, Texas-based energy company, F-W Oil Interests Inc. (\u201cFWO\u201d) lost its fight against the Republic of Trinidad & Tobago (\u201cT&T\u201d) arising out of alleged breaches of the 1996 US investment protection treaty with the Caribbean nation (the \u201cUSA\/T&T BIT<\/span>\u201d).
\n\ufffd
\nThe decision, recently published, reveals that the American company failed to convince the presiding arbitral tribunal that it had an \u201cinvestment\u201d as defined under the terms of the relevant BIT. <\/span><\/p>\n

Commencing arbitration against T&T in the fall of 2001, FWO\u2019s claim arose as a result of its alleged investment in the Soldado Fields, the site of an offshore oil and gas development and production project and a key development to T&T\u2019s economy.<\/span><\/p>\n

The Soldado Fields were initially controlled by the state with Petrotrin, T&T\u2019s national oil company owning the rights to the oil, and Trinmar, a corporation controlled by T&T via Petrotrin having the responsibility to develop and exploit the offshore resource.\u00a0 In 1999, after operations at the Soldado Fields were shut-in due to problems with the structures used to extract oil and gas, the government sought to recommence resource production by soliciting the participation of foreign investors in the region.\u00a0 Accordingly, Trinmar commenced a public tender process inviting potential bidders to \u201cparticipate in Trinmar\u2019s West and South West Soldado Fields.\u201d\u00a0 Despite some controversy over whether Trinmar could properly make such an invitation, FWO came away the successful bidder and was awarded the tender subject to its ability to conclude a \u201cmutually agreeable operating agreement\u201d with Trinmar.<\/span><\/p>\n

Having learned that it would not attain a proprietary interest in either the Soldado Fields or the minerals obtained there from, but would instead operate the project as a \u201cService Contractor\u201d, remunerated by a rate per barrel of oil produced, FWO attempted to obtain certain guarantees from Trinmar.\u00a0 Specifically, it asked for a \u201cguarantee or other form of security to secure payment to FWO under the anticipated contract\u201d and \u201cassurances that FWO would be compensated for work done in anticipation of an agreement to carry out the project, if in the event such an agreement was not concluded.\u201d<\/span><\/p>\n

Neither request received a positive response from Trinmar, and eventually FWO received a letter indicating that Trinmar was withdrawing from the negotiations.\u00a0 Following receipt of this letter, FWO made various attempts to have the decision reversed by Trinmar, or countermanded by the Government, but such attempts proved unsuccessful, frustrating FWO\u2019s ability to conclude the necessary operating agreement.<\/span><\/p>\n

As a result, FWO commenced arbitral proceedings on the basis that it had established an investment in T&T by: (i) entering into an investment agreement with the State, (ii) acquiring rights under the laws of T&T, the BIT and international law in relation to an offshore oil and gas development and production project and (iii) contributing money and tangible and intellectual property to the project.<\/span><\/p>\n

In addition, FWO later asserted corruption on the part of certain T&T officials as a basis for its claim.\u00a0 In response to its alleged refusal to pay a US$1.5 million bribe in connection with an oil and gas contract, FWO argued that \u201c\u2026senior officials of Petrotrin engaged in wrongful conduct that caused Trinmar to breach its contractual obligations to FWO.\u201d\u00a0 According to FWO those \u201c\u2026officials then commenced a campaign of disinformation designed to force FWO\u2019s removal as a successful bidder and abused their oversight positions in Petrotrin and the T&T government to block Trinmar proceeding with the award.\u201d <\/span><\/p>\n

Naturally, the inclusion of such claims regarding the conduct of T&T state officials promised to alter the tenor of the arbitration.\u00a0 As the tribunal noted, \u201c[a] relatively mundane\u2026dispute about the existence of contractual rights\u2026and about their relationship to a [BIT], was now to be the stage for a highly-coloured attack on officials, sufficiently senior for their conduct to be identified with that of the State.\u201d<\/span><\/p>\n

Such an assault never came to fruition, however.\u00a0 FWO was forced to withdraw its allegations at the end of the arbitral proceedings, after the tribunal raised pointed questions as to whether there was sufficient evidence to sustain FWO\u2019s allegations.\u00a0 Apparently perplexed by the lack of evidence to substantiate claims regarding the alleged corruption of T&T officials, the tribunal was careful not to make any findings relating to \u2013 and even excluded an account of the documents and evidence devoted to \u2013 those allegations from its decision.\u00a0 Indeed, the tribunal noted that its function was not to \u201cpass moral judgement on the behaviour of one or another Party, or indeed both Parties, but simply to decide on the validity of the claims brought, and on their legal consequences.\u201d<\/span><\/p>\n

Having so stated, the tribunal focused its efforts on what it termed \u201cthe less dramatic, but intellectually more taxing\u201d question of whether FWO had the benefit of a binding pre-contractual agreement, which constituted an investment in T&T, and which the State unfairly infringed.<\/span><\/p>\n

For its part T&T made two submissions in response to FWO\u2019s claim.\u00a0 Characterizing the costs and expenditures incurred by FWO as \u201cpre-contract expenditures\u201d, T&T first argued that there was no dispute arising out of (relating to) an \u201cinvestment\u201d, as required by both the ICSID Convention<\/span> and the BIT. Additionally, T&T argued that the dispute, if any, arose as a result of the actions of Trinmar, Petrotrin or their officials, for which it could not be found liable.<\/span><\/p>\n

Reflecting on the first issue, the tribunal commented that such a vital question \u201c\u2026should not be approached in a narrow technical way, but rather in the context of the intention animating the BIT and in the light of its terms.\u201d\u00a0 Accordingly, the tribunal determined that \u201c\u2026the notion of an \u201cinvestment\u201d\u2026[could] only realistically be understood as referring to something in the nature of a legal right or entitlement\u201d and therefore found that FWO\u2019s claim must fail as it had not entered into a binding contract with Trinmar.\u00a0 Specifically, the tribunal determined that there was one aspect of the Parties\u2019 dealings which proved fatal to the existence of a contract: namely, the insistence by FWO and T&T that they would not be legally bound before the execution of a formal contract.<\/span><\/p>\n

In a related analysis the tribunal also examined whether, even in the absence of an \u201cinvestment\u201d, there nevertheless existed an \u201cinvestment agreement\u201d under the BIT sufficient to ground FWO\u2019s claim.\u00a0 The tribunal commented that a dispute of such an \u201cextended kind\u201d may also ground its jurisdiction even though \u201csuch a dispute may not arise out of an \u201cinvestment\u201d very \u201cdirectly\u201d at all.\u201d\u00a0 Noting the uniqueness of such a concept to BITs concluded by the USA and the lack of arbitral jurisprudence discussing how such a term should be interpreted and\/or applied, the tribunal solicited arguments on this issue from both of the Parties.<\/span><\/p>\n

FWO missed an opportunity to ground the tribunal\u2019s jurisdiction on such an \u201cextended\u201d basis, as its arguments on this point continued to focus on whether FWO had acquired contractual rights \u2013 assertions that were essentially the same as those already made in relation to whether FWO had made an \u201cinvestment\u201d in T&T.\u00a0 Dissatisfied with the arguments presented by FWO and T&T, the tribunal did not elaborate further on this issue except to say that \u201c\u2026it would not wholly exclude the possibility that circumstances might arise under which\u2026a tribunal might conclude that an \u201cinvestment agreement\u201d\u2026had come into being, and was sufficient to found a valid claim under a BIT, even in the absence of an actionable contract and thus an \u201cinvestment\u201d\u2026in the strict sense of the term.\u201d<\/span><\/p>\n

Sources:<\/span><\/p>\n

Award in F-W Oil Interests Inc. v. Republic of Trinidad & Tobago is available at:
\nhttp:\/\/ita.law.uvic.ca\/documents\/FWOilAward.pdf<\/a>
\n<\/span><\/p>\n