Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MR JUSTICE BURTON
Between :
(1) Mr Sadruddin Hashwani (2) Zaver Petroleum Corporation Limited (3) Ocean Pakistan Limited | Claimants |
- and - | |
OMV Maurice Energy Limited | Defendant |
Michael Brindle QC, Brian Dye and Varun Zaiwalla (instructed by Zaiwalla & Co LLP) for the Second and Third Claimants
Christopher Hancock QC and Chris Smith (instructed by Bentleys, Stokes & Lowless) for the Defendant
The First Claimant did not appear and was not represented
Hearing date: 8 June 2015
Judgment
Mr Justice Burton :
The parties before me are Zaver Petroleum Corporation Limited (“ZPCL”) and Ocean Pakistan Limited (“OPL”) on the one side and OMV Maurice Energy Limited (“OMV”) on the other, in proceedings arising out of oil and gas exploration in Pakistan. I shall so refer to them, even though there have been certain immaterial changes in name and entity. There was an oil exploration licence granted in December 1999 to OPL’s predecessor by the President of Pakistan, which incorporated the Pakistan (Exploration and Production) Rules 1986 (“the Rules”). A series of agreements followed:
The Petroleum Concession Agreement (“the PCA”) dated 29 December 1999 between the President, a Pakistan entity called “Government Holdings” and OPL.
A Joint Operating Agreement (“the JOA”) also dated 29 December 1999 between Government Holdings and OPL.
The Farmout Agreement (“FOA”) dated 30 March 2000 between OPL, OMV and ZPCL.
Two Deeds of Assignment amending the licence, the PCA and the JOA, one (the OMV Assignment) between the President, Government Holdings, OPL and OMV, (“the OMV Assignment”) dated 30 March 2000, giving a 75% working interest in the relevant Block to OMV, and one (“the ZPCL Assignment”) between the President, Government Holdings, OPL and ZPCL dated 20 October 2000, giving a 5% working interest in the Block to ZPCL.
There has unfortunately been since 2011 a plethora of proceedings in Pakistan, either five or six sets of proceedings in the Pakistani Courts, in essence arising out of claims by OMV that OPL and ZPCL have failed to pay calls under the JOA, which if correct would lead to substantial sanctions under the FOA. There have also been two arbitration applications in the Pakistani Courts, both brought by OMV against OPL and ZPCL, the first being an application for a stay, by reference to proposed arbitration under the provisions of the PCA and JOA and the Rules, in June 2011, and then an arbitration petition in October 2011, by reference to the arbitration provisions of the FOA and the Rules (“the 2011 Petition”).
There has now been a Request for arbitration, made in November 2014 to the ICC by OMV against OPL and ZPCL (and Mr Hashwani, who controls both companies), by reference to the provisions of the PCA and JOA (“the 2014 Request”). There has been a challenge in these courts to the jurisdiction of the ICC by OPL and ZPCL (and indeed also a successful challenge by Mr Hashwani, to whom Andrew Smith J granted an injunction on 31 March 2015).
There are two applications before me:
The application by OPL and ZPCL by reference to s.72 of the Arbitration Act 1996 (“s.72”), challenging the jurisdiction of the ICC, seeking injunctions.
OMV’s applications for a stay of these proceedings on the basis that the ICC should determine the question of jurisdiction, alternatively a stay under s.9 of the 1996 Act, on the basis that there is a valid arbitration agreement.
The real issue is whether Article 28 of the PCA (incorporated, as will appear, into the JOA by its Article 17) now relied upon by OMV before the ICC is an arbitration agreement which governs the issues between the parties. Article 28 of the PCA reads as follows:
“28.1 Any question or dispute arising out of or in connection with the terms of this Agreement or the Licence or any Lease (regardless of the nature of the question or dispute), shall, as far as possible, be settled amicably. Failing an amicable settlement within a reasonable period, such dispute shall be submitted to the International Center for Settlement of Investment Disputes (ICSID) established by the “Convention on the Settlement of Investment Disputes Between States and Nationals of Other States” and THE PRESIDENT and the Working Interest Owners, to the extent required by said Convention, hereby consent to arbitration thereunder.
The venue of the arbitration shall be in Pakistan or elsewhere as mutually agreed between THE PRESIDENT and the Foreign Working Interest Owners. If such mutual agreement cannot be reached, the venue shall be decided by the International Center. The award rendered shall be final and conclusive. The judgment on the award rendered may be entered in any court having jurisdiction or application may be made in such court for a judicial acceptance of the award and an order of enforcement as the case may be. The official language of arbitration will be English.
28.2 If, for any reason, the request for arbitration proceedings is not registered by ICSID, or if the ICSID fails or refuses to take jurisdiction over such dispute, such difference or dispute shall be finally settled by arbitrators under the Rules of Arbitration of the International Chamber of Commerce (the “Chamber Rules”) and by three (3) arbitrators appointed in accordance with the Chamber Rules. The arbitrators shall not be nationals of Pakistan or of the country of the other party to the dispute nor shall any of such arbitrators be employees or agents or former employees or agents of any of the parties to the proceedings.
28.3 This Article is only applicable in case of a dispute between foreign Working Interest Owners inter se or between foreign Working Interest Owners and THE PRESIDENT, provided that in the event of a dispute between the Pakistani Working Interest Owner(s) inter se, or between the Pakistani Working Interest Owners and THE PRESIDENT, the arbitration shall be conducted in accordance with the Pakistan Arbitration Act.”
Article 28 does not, in accordance with its terms, apply to disputes between a foreign Working Interest Owner (FWIO) and a Pakistani Working Interest Owner (PWIO). ZPCL is a PWIO and OMV is a FWIO, as is OPL. There is the proviso that disputes between PWIOs, or between PWIOs and the President are referred to arbitration under the Pakistani Arbitration Act, but the material words are clear: ICC arbitration as provided for by Article 28 is only applicable to disputes between FWIOs.
Article 17 of the JOA reads as follows:
“Any dispute arising out of this Joint Operating Agreement shall be dealt with mutatis mutandis in accordance with Article XXVIII of the Concession Agreement.”
The first question is whether Article 28 of the PCA and Article 17 of the JOA apply to the dispute between OMV and OPL, being both FWIOs. Mr Hancock QC, who appears for OMV, submits that they plainly do and that the claims by OMV against OPL for unpaid cash calls, and the circumstances in which they are unpaid and the consequences of their being unpaid, falls within the ICC arbitration pursuant to Articles 28 and 17.
Mr Brindle QC for OPL and ZPCL submits that Article 28 is only applicable “in case of a dispute between [FWIOs] inter se”, and that this dispute is not between FWIOs inter se but between a FWIO, OMV, and two other Working Interest Owners, one of which is a FWIO and one of which is a PWIO.
He submits that the structure and intent of the Article is clear, namely that what is intended is to leave disputes between foreign companies to foreign arbitration, so as to avoid the submission of a foreign party to domestic arbitration, and disputes between Pakistani entities to Pakistani arbitration, and that such a hybrid as this claim does not fall within Article 28 at all: it falls rather within one or both of two arbitration provisions, namely (i) the Rules - to which the PCA is subject, by reference to Article 29.6 (“where any matter is not specifically dealt with in this Agreement”) and similarly the JOA, by Article 18, which makes clear reference to the Rules – and (ii) Article 7.2 of the FOA, to which, as set out above, all three of OPL, ZPCL and OMV were parties:
Rule 73 reads as follows:
“Arbitration – Except as otherwise agreed, any question or dispute regarding a Petroleum right or any matter or thing connected therewith shall be resolved by arbitration in Pakistan, and in accordance with Pakistani laws.”
Article 7 of the FOA reads in material part:
“7.2 This Agreement and the relationship between the Parties shall be governed by and Interpreted in accordance with the laws of the Islamic Republic of Pakistan. With respect to all disputes to be resolved hereunder, the Parties agree that the forum will be in Islamabad, Pakistan and any dispute shall first be settled by negotiation by the Parties and then resolved by reference to three Arbitrators each one to be nominated by the Parties in accordance with the Arbitration Act 1940 or any other statutory laws enforced for the time being in Pakistan. And in case of any disagreement between the Arbitrators, by an Umpire to be appointed by the Arbitrators but with the consent of the Parties, whose decision shall be final and binding upon the Parties.
7.3. However there shall be no bar on the Parties to settle any dispute through the laws of England after exhausting option/remedy available under Article 7.2 above.”
Hence if Mr Brindle’s submissions be correct, there is no lacuna and thus no need for any concern in concluding that Article 28 does not apply. Indeed, he further submits, as set out below, that in any event the relevant arbitration provision is that in the FOA, as OMV itself must have accepted when bringing in Pakistan the 2011 Petition, by reference to the FOA, to which I have made reference in paragraph 2 above.
Before I address Mr Hancock’s answer to this, I must set out the relevant parts of the 2014 Request, in which the claims of OMV (as “Claimant”) are expressed:
“31. In its role as Operator of the Mehar Block, the Claimant has issued a number of cash calls to OPL and ZPCL, through 31 March 2014 and beyond. It has done so in relation to OPL and ZPCL’s obligations to pay their respective shares. . .
32. In breach of their respective obligations . . . OPL and ZPCL repeatedly failed to pay those cash calls, whether promptly or ever. . .
33. In addition, OPL and ZPCL are obliged under the [FOA] to meet their respective share of costs in connection with the Mehar Concession . . .
34. Under the [FOA], where a respondent fails to pay any amounts owed to the Operator (i.e., the Claimant) for more than 90 days after its default, it is obligated to transfer all its Working Interest to the other Non-Defaulting Parties in proportion to their Working Interests.
35. Finally, notwithstanding these, and other, serial breaches, and despite the deliberate failure to pay their shares of the costs in connection with the Mehar Concession; OPL and ZPCL. . . have been unjustly enriched through their receipt of their respective shares of the proceeds from the sale of gas and condensate. . .
. . .
40. Therefore, the Claimant’s claims are based, inter alia, on the following breaches by the Respondents:
A. The Respondents’ ongoing failure to pay cash calls representing their proper shares of costs and expenses in proportion to their respective Working Interests in the Mehar Concession;
B. The Respondents’ bad faith and wilful misconduct in frustrating the purposes, inter alia, of the PCA [and] the JOA, . . . thereby causing harm to the Claimant’s interests in Mehar; and
C. The Respondents’ vexatious efforts to harm, and put at risk, the Claimant’s Working Interest in the Mehar Block.
. . .
43. As a consequence of the foregoing, the Claimant respectfully requests an Award including the following relief:
(a) Declaring that OPL and ZPCL are severally liable for their failure to meet their respective obligations to pay cash calls, which include OPL and ZPCL’s violations of the terms of the PCA and the JOA since 2011 and which failure caused economic harm to the Claimant;
. . .
(c) Ordering OPL and ZPCL to transfer their respective Working Interests in the Mehar Concession to the Claimant pursuant to Article 5.2 of the [FOA] as a result of the breaches in subparagraph (a) above.
. . .
(f) Awarding monetary damages for the totality of the damages suffered by the Claimant as a result of the breaches in subparagraph (a) above, including damages incidental to and/or consequential to the Respondents’ breaches of the PCA, the JOA, . . . and Pakistani law, in an amount presently quantified (inclusive of interest) at US$30,963,229 for OPL and US$10,680,937 for ZPCL.”
The same claims were set out in the 2011 Petition (OMV being “Petitioner” and OPL and ZPCL being “Respondents No.1 and No.2”):
“15. That the Petitioner had raised numerous cash calls in respect of exploration and development of Sofiya-1 Well, which were defaulted on by the Respondents No.1 and No.2.
. . .
19. That the Respondent No. 1 further has defaulted in payment of numerous cash calls as made by the Petitioner . . .
20. That the Respondent No.2 further has defaulted in payment of numerous cash calls as made by the Petitioner . . .
. . .
27. That the Respondents No. 1 and No.2 have therefore, strictly under the terms of the JOA and FOA committed default . . .
28. That as per Article 5.2 of the FOA, the Respondent No.1 and the Respondent No.2 are obligated to transfer their working interest in the Mehar Block concession held by them under the terms of the PCA to the Petitioner and Government Holdings in proportion to their respective working interest. . .
. . .
30. That the Respondents No.1 and No.2 have failed to act in accordance with the terms of the JOA and FOA, consequent to which the Petitioner having a lien already on the said working interest share of the Respondents No.1 and No.2 on account of default, has the legal right to transfer the said working interest share . . .”
OPL
Mr Brindle submits that the whole claim against OPL and ZPCL is outside Article 28, and hence he can succeed under s.72 by establishing that there is no valid arbitration agreement encompassing this dispute, because it is not a dispute between FWIOs inter se but, as set out in paragraph 9 above, is a dispute between a FWIO on the one hand and FWIO and a PWIO on the other. Mr Hancock simply submits that the claims made by OMV against OPL and by OMV against ZPCL are several and severable, as can be seen from the pleadings set out above. OMV has a claim against OPL for unpaid calls (and an allegedly consequential entitlement to have OPL’s working interest transferred to it) and has a similar but separate claim (and for different sums) against ZPCL. The claim against OPL is a dispute between two FWIOs inter se. The fact that there is also a claim by OMV against ZPCL, which is a PWIO, is irrelevant. OMV cannot therefore be prevented from pursuing its claim against OPL by reference to Article 28.
Mr Brindle submits that such claims fall within the FOA:
The claim for the transfer of the working interest is only relevant under the FOA. Clause 5.2 reads:
“In the event any Party (“Defaulting Party”) fails to pay any amount owed by it to the Operator as its share of such costs and expenses or cash calls within the time limit for payment thereof as provided in the Accounting Procedure, the Operator after giving two consecutive notices . . . shall have [certain rights] ”.
As set out in paragraph 10 above, the FOA arbitration provision covers “this Agreement and the relationship between the Parties”.
As referred to in paragraph 8 above, OMV itself relied upon the FOA arbitration provision in the 2011 Petition:
“37. That under Article 7 of the FOA, any dispute occurring between the Petitioner and the Respondents is required to be referred to arbitration under the Arbitration Act, 1940 before three arbitrators with each arbitrator being nominated by the parties and the arbitrators so appointed may appoint a referee in the event that they disagree. The dispute being primarily in respect of the Respondents failure to act in terms of Article 5.2 of the FOA, the arbitration agreement provided under the FOA would be applicable.
38. That it has become apparent that a dispute exists between the Petitioner and the Respondent No.1 and the Respondent No.2 on account of the failure of the Respondents No.1 and No.2 to transfer their working interest in the Mehar Concession to the Petitioner and the Government Holdings in the proportion required under the terms of the FOA as a consequence of the defaults committed by the Respondents No.1 and No.2 in respect of cash calls raised by the Petitioner under the terms of the JOA and FOA. Hence, the Petitioner seeks to refer the dispute to arbitration under the terms of the FOA.
39. That this Hon’ble Court has the sole jurisdiction under the Arbitration Act, 1940 to refer the matter to arbitration. The Petitioner shall submit its nominations for the arbitrators in accordance with the directions of this Hon’ble Court and seeks the venue of the arbitration to be Islamabad. . .”
This falls to be contrasted with paragraph 41 of the 2014 Request, the conclusory paragraph of which, leading to the relief recited at paragraph 10 above, reads:
“As established in this Request for Arbitration, and as will be shown during the course of these arbitral proceedings, the Respondents’ conduct, including the repeated failure by OPL and ZPCL to pay cash calls when due and the Respondents’ obstruction of the operations of the joint venture, constitute serial breaches, inter alia, of the PCA, the JOA, . . . Pakistani law, and generally accepted principles applicable to joint ventures and/or petroleum concessions.”
Mr Brindle refers to two lines of authority to support the proposition that the disputes fall within the FOA and not within the PCA and JOA, and thus that s.72 is applicable:
First he submits that the FOA has overtaken and overridden the provisions of the JOA. He relied upon the proposition that a specific agreement supersedes a general agreement. He relies upon dicta in Finagra v OT Africa Lines [1988] 2 Lloyd’s Law Rep 62 per Rix J at 629 and Transgrain Shipping BV v Diulemar Shipping SpA [2014] EWHC 4202 (Comm) per Teare J at 26 to that effect.
Secondly he submits that where there are two arbitration provisions which could both govern a dispute, the court should only have regard to that which is closer to the dispute and that the centre of gravity of a dispute here is the FOA. He accepts that there is no applicability of a concept similar to that of forum conveniens, of ‘arbitratio conveniens’, but submits that the FOA (including its provisions of clause 5.2) is, and the JOA/PCA is not, the appropriate provision. He refers to Dicey, Morris & CollinsConflict of Laws (16th Ed) paragraph 12-110, to Trust Risk Group SpA v Amtrust Europe [2015] EWCA Civ 437 per Beatson LJ at 48 and Sebastian Holdings Inc v Deutsche Bank AG [2011] 1 Lloyd’s Law Rep 106, all of which are discussing apparently concurrent jurisdiction clauses.
Mr Hancock responds to this as follows:
His clients are not suggested to be estopped by having relied upon the provisions of the FOA in the 2011 Petition, which is now sought to be stayed in Pakistan (any more than OPL and ZPCL are estopped by having in the Pakistan proceedings denied the FOA’s applicability: both parties have reversed their stances). He accepts that the provisions may both apply, but there is a straightforward claim by a FWIO against another FWIO (a dispute between FWIOs inter se) for breach of contract in respect of unpaid calls, which falls within Article 28, as set out in paragraph 13 above. The circumstances of how it came about that there were such unpaid calls under the JOA will all be resolved within the ICC arbitration pursuant to the 2014 Request. If it turns out that the ICC Arbitrators conclude that the remedy of transfer of interest is not available, and that is for them to decide, then that can be dealt with by subsequent resolution.
The FOA plainly does not supersede or oust the JOA/PCA. This is quite clear from the provisions of the two Assignments, the OMV Assignment and the ZPCL Assignment, referred to in paragraph 1 above. So far as concerns the issue with which I am now dealing, the determinability within Article 28 of the claim by OMV against OPL, the OMV Assignment, made on the same date, to which both OPL and OMV were party, by Article 2 ratified and confirmed the “Concession Documents” (defined by Article 1.3 as the Licence, the PCA and the JOA); and by Article 7 they agreed that:
“Any dispute or differences between the Parties with respect to any matter under or relating to this Deed should be settled through arbitration in accordance with the provisions set out in the Concession Agreement.”
The authorities upon which Mr Brindle relies would require the specific agreement to rule out or override the general. There is no possibility of such an argument in this case.
The authorities which Mr Brindle relies upon also do not permit him to submit that where there are two arbitration provisions the court should decide which one is more appropriate, and certainly not (even by reference to cases in which, such as Sebastian Holdings, there was a dispute as to which of two jurisdiction clauses were more appropriate) to enable an argument to be put forward that one of them (albeit less appropriate) is not valid within s.72.
I accept Mr Hancock’s submissions. The claim by OMV against OPL plainly falls within Article 28, irrespective of whether there is also a claim against ZPCL within Article 28, to which I turn below. The arbitration provision is valid and the dispute as to whether OPL is in breach of the JOA falls within it, the provisions of the JOA have not been overtaken or superseded by those in the FOA, and even if the dispute falls within both provisions that does not oust the former nor render it invalid.
With regard to the issues by reference to s.72 (and the mirror applications by OMV) there are three options for me to take with regard to the question whether the claim brought by OMV against OPL falls within the ICC’s jurisdiction:
A decision that it clearly does.
A decision that it clearly does not.
Leaving the issue to the ICC to decide by reference to the concept of Kompetenz Kompetenz.
I have considered Birse Construction Ltd v St David Ltd [1999] BLR 194, Ahmad Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyd’s Law Rep 522 and JSC Aeroflot-Russian Airlines v Berezovsky [2013] EWCA Civ 784. I am satisfied that the claim by OMV against OPL clearly falls within the jurisdiction of the ICC.
Mr Brindle relies on Fiona Trust v Privalov [2013] 1 Lloyd’s Law Rep 254 HL to the effect that, if there be one arbitration, rational businessmen must have intended that it would deal with all issues. Such a concept may not be portable to a case where there are two available arbitration provisions in different contracts to which all are parties, but in any event I am satisfied that the dispute between OMV and OPL falls within the ICC arbitration, and that it cannot be said within s.72 that the arbitration agreement relied upon by OMV is not valid.
ZPCL
The second, and more contested, issue relates to the question whether the claim by OMV against ZPCL falls within the ICC arbitration. Mr Brindle submits that it does not, because of the straightforward wording of Article 28: OMV is a FWIO and ZPCL is a PWIO and consequently this is not a dispute between FWIOs inter se. This does not leave a lacuna, because of the availability of Rule 73 (applicable except as otherwise agreed, which on Mr Brindle’s submission it has not been) and the FOA. Fiona Trust does not apply so as to support Mr Hancock, because the dispute falls within the one arbitration provision and not within the other, and, as discussed above, the concept does not in any event extend so far as to impose a presumption that where there are two arbitration provisions, an issue falls within one rather than the other.
Further Mr Brindle makes an express submission by reference to the ZPCL Assignment. While the Article 28 arbitration provision was expressly incorporated in the OMV Assignment (by Article 7), such provision was omitted from the ZPCL Assignment, which suggests that it was accepted that Article 28.1 and 28.2 could not apply to ZPCL as a PWIO.
Mr Hancock however submits that arbitration by the ICC isotherwise agreed and that Rule 73 does not apply. He relies on the words of Article 17 of the JOA, set out in paragraph 7 above, and in particular on the words “mutatis mutandis”.
His submission is as follows:
The PCA had only three parties – the President, Government Holdings, a PWIO, and OPL, a FWIO. It would plainly be contemplated that there would be more parties with a working interest in future. I note that this proposition is supported by the use of the plural “foreign Working Interest Owners” in Article 28.1 and 28.3 and of the words “Pakistani Working Interest Owner(s)”, and the use of the word “inter se” in relation to both, at a time when there was only one of each.
Similarly the JOA at the outset had only two parties, Government Holdings (a PWIO) and OPL (a FWIO): not the President.
On 30 March 2000 (the same day as the FOA) the OMV Assignment was agreed. This made OMV a party to the JOA (and the PCA): clauses 3.1, 3.2, 3.4, 4.2 and Schedules B and C. [NOTE para 38(c) of the PCA re party to the PCA and the JOA].
ZPCL similarly became a party to the JOA and the PCA by virtue of the ZPCL Assignment, 7 months later: see clauses 3.1, 3.2, 4.2 and Schedules B and C.
Consequently Article 17 of the JOA applied to both OMV and ZPCL, so that the provision must be read so as to reflect the express agreement of the parties, thus including OMV and ZPCL, that Article 28 of the PCA would apply mutatis mutandis.
There is thus no question of a lacuna. The arbitration provisions of Article 28 apply. The same context of the need to extend the protection of ICC arbitration to a foreign party applies. So mutatis mutandis must operate, now that extra FWIOs and PWIOs are added, so as to provide that any dispute between the parties to the JOA as Working Interest Owners inter se,including a dispute between a FWIO and a PWIO, should fall within the ICC arbitration and not the domestic arbitration, which is limited to disputes between Pakistani parties.
Thus when ZPCL became a party to the JOA, it became subject to the rights and obligations of Article 28 mutatis mutandis i.e. to the ICC arbitration clause. It is thus irrelevant that there was not an equivalent to Article 7 in the ZPCL Assignment, because of ZPCL becoming a party to the PCA and the JOA and its provisions, including its arbitration provisions mutatis mutandis.
I prefer the submissions of Mr Hancock. His construction breathes life into the words mutatis mutandis. Article 28 is obviously to apply to the parties to the JOA, and it is wholly unlikely that a dispute between a FWIO and a PWIO would be assimilated to the disputes between PWIOs, governed by the proviso in Article 28.3, rather than to the ICC arbitration provision.
However I note what is said in Birse at 197 and Al-Naimi at 525. When a court cannot be sure of jurisdiction but there will in any event be an arbitration, as I have concluded there will be here, and between closely related parties as to the very matters in issue, then it is a sensible course to take to leave the question of the arbitrators’ jurisdiction in relation to this claim, that is the claim by OMV against ZPCL, which must manifestly run in tandem with the claim by OMV against OPL, to be finally decided by the ICC arbitrators. Of course it may be that the parties may be prepared to agree, now that in any event the issue as between OMV and OPL will be decided by the ICC, that there need be no further challenge to their jurisdiction, and that this long running saga can now be finally addressed all in one place, before the ICC.
To that extent, Mr Brindle’s application fails, and I shall invite the parties to address me on the appropriate form of order.