International Centre for Settlement of Investment Disputes (ICSID)

International Centre for Settlement of Investment Disputes (ICSID)

Procedure of ICSID

Niko Case Bangladesh

ICSID

The International Centre for Settlement of Investment Disputes (ICSID) is an international arbitration

institution established in 1965 for legal dispute resolution and conciliation between international investors. The ICSID is part of and funded by the World Bank Group, headquartered in Washington, D.C., in the United States. It is an autonomous, multilateral specialized institution to encourage international flow of investment and mitigate non-commercial risks by a treaty drafted by the International Bank for Reconstruction and Development's executive directors and signed by member countries.[2][3] As of May 2016, there were 153 contracting member states agree to enforce and uphold arbitral awards in accordance with the ICSID Convention. The center performs advisory activities and maintains several publications.

Procedure of ICSID

ICSID  provides  institutional  support  in  the  selection  of  arbitrators  and  in  the  conduct  of  arbitration  proceedings.  The  Secretary-General  of  ICSID  exercises  a  screening  power  over requests for arbitration and will refuse to register a request that is manifestly outside ICSID’s jurisdiction (Art. 36(3)).

Arbitration proceedings are to be conducted in accordance with the Convention and, except as the parties otherwise agree, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. The Arbitration Rules are adopted by the Centre’s Administrative Council. The Arbitration Rules are supplemented by Institution Rules as well as Administrative and Financial Regulations.

Any question of procedure not covered in this manner is to be decided by the Tribunal (Art. 44).  Therefore,  ICSID  proceedings  are  self-contained  and  denationalized,  i.e.  they  are  independent of any national law including the law of the tribunal’s seat. Domestic courts do not have the power to intervene.

ICSID proceedings are initiated by a request for arbitration directed to the Secretary-General of ICSID. The request may be submitted by either the investor or the host State. In practice, the  investor  is  nearly  always  the  claimant.  The  request  must  be  drafted  in  one  of  ICSID’s  official   languages (English,   French   and   Spanish).   A   non-refundable   lodging   fee   of   US$25,000.- is due with the request.

Tribunals  are  nearly  always  composed  of  three  arbitrators.  Tribunals  consisting  of  a  sole  arbitrator are rare. Under the standard procedure for the appointment of arbitrators each party appoints  one  arbitrator  and  the  third,  who  is  the  tribunal’s  president,  is  appointed  by  agreement of the parties (Art. 37(2)(b)). A different  mode  of  appointment  may  be  agreed  by  the  parties.  Sometimes  the  two  party-appointed  arbitrators  are  charged  with  the  appointment  7 of  the  tribunal’s  president.  If  the  tribunal  is  not  constituted  after  90  days,  either  party  may  request  the  Chairman  of  the  Administrative  Council  to  make  any  outstanding  appointments  (Art. 38).

Proceedings involve a written phase followed by an oral one. The written phase is opened by a memorial of the claimant followed by a counter-memorial of the respondent. In most cases there is another round of written exchanges termed reply and rejoinder.

If the respondent raises objections to the tribunal’s jurisdiction, the proceedings on the merits

are  suspended.  Such  an  objection  is  to  be  submitted  not  later  than  at  the  time  the  counter-memorial is due. Typically, the proceedings are then bifurcated, i.e. the jurisdictional question is  heard  first,  followed,  if  the  tribunal  finds  that  it  has  jurisdiction,  by  a  resumption  of  the  proceedings  on  the  merits.  Alternatively,  the  tribunal  may  decide  to  join  the  jurisdictional  question to the merits. In most cases the procedure dealing with jurisdiction also consists of a written and of an oral phase.

Default, i.e. non-participation of an uncooperative party, will not stall the proceedings. If one party fails to present its case, the other party may request the tribunal to proceed and render an award.  Before  doing  so,  the  tribunal  will  give  the  non-appearing  party  another  chance  to  cooperate. The appearing party’s assertions will not be accepted just because the other party does  not  cooperate  and  hence  does  not  contest  them.  Rather,  the  tribunal  has  to  examine  all  questions   of   jurisdiction   and   competence   and   decide   whether   the   appearing   party’s   submissions are well-founded in

fact and in law (Art. 45).

Awards are rendered in writing and are signed by the members of the tribunal. Most awards are rendered unanimously, but majority decisions are possible. A member of the tribunal may attach a dissenting opinion or a declaration. Awards must deal with all questions submitted to the tribunal and contain a full statement of reasons. The award is dispatched promptly to the parties

Niko Case Bangladesh

Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited ("Bapex") and Bangladesh Oil Gas and Mineral Corporation ("Petrobangla"),  ICSID Case No. ARB/10/11

Fact

The government had decided to develop marginal or abandoned gas fields in Bangladesh. Niko, a company incorporated under the laws of Barbados, proposed to carry out this development. Niko evaluated three such abandoned gas fields and concluded that two of them, the Chattak and the Feni fields, were sufficiently favourable to continue with a work plan.

With the approval of the government, Niko concluded a Joint Venture Agreement (JVA) on October 16, 2003, with the Bangladesh Petroleum & Production Company, Limited (BAPEX) to develop those gas fields. The development of the Feni field was successful and gas supplies from two wells started in November 2004.

Disputes Arisen

The first dispute arose between Niko and Petrobangla as to the price of gas. BAPEX and Niko (the Joint Venture Partners) began to negotiate a Gas Purchase and Sale Agreement (GPSA) with the Bangladesh Oil Gas and Mineral Corporation (Petrobangla). Niko requested a price of $2.75/MCF and the buyer (Petrobangla) offered $1.75/MCF. On December 27, 2006, a GPSA was concluded where the price was fixed at $1.75/MCF. Petrobangla made some payments but much of the gas delivered remains unpaid for. As of April 1, 2010, it owed Niko and BAPEX $27.16 million and $8.55 million respectively. Niko served several reminders to Petrobangla for payment for the gas produced by Niko.

The second dispute that arose between Niko and Petrobangla and the government was over compensation for the damages caused by two blowouts that occurred during drilling in the Chattak field on January 7, 2005, and another on June 24, 2005. The Bangladesh Environmental Lawyers' Association (BELA) and others introduced a petition in the Supreme Court of Bangladesh, High Court Division, against the Government of Bangladesh, Petrobangla, BAPEX, Niko and others, seeking inter alia a declaration that (a) the Joint Venture Agreement (AVA) reached between Niko and BAPEX was invalid; and (b) an injunction against Petrobangla restraining payments to Niko in respect to the Feni gas field.

The court issued the injunction against Petrobangla but denied the requested declaration on May 5, 2010.  In May or June 2008, Petrobangla and the government of Bangladesh commenced legal action in the Court of District Judge, Dhaka, against Niko and others, seeking compensation on the order of Tk. 746.5 crore as damages for the two blowouts (the Money Suit). These proceedings are still pending.

As a result, the following three disputes arose between Niko, Bapex and Petrobangla and the government:

Niko claimed payment (payment claim) for the outstanding invoices for the gas delivered to Petrobangla;

Petrobangla and the government claimed compensation for the damages occurred due to the blowouts;

Niko sought a declaration that it was not liable for damages in relation to the blowouts (the compensation declaration).

Judgement of ICSID

In the ICSID

arbitration case with respect to NRBL’s claim for payments owing to it by Petrobangla for gas deliveries made under the Feni Gas Purchase and Sale Agreement between those parties, the Tribunal decided that:

a) Petrobangla shall pay into escrow accounts:

i) approximately US$25 million plus approximately 140 million Bangladeshi taka (“BDT”) as per invoices for gas delivered from November 2004 to April 2010; plus

ii) interest to September 11, 2014 of approximately US$6 million and approximately 50 million BDT; plus

iii) interest from September 12, 2014, at the six ‐ month London Interbank Offered Rate + 2% for USD amounts and 5% for BDT amounts, compounded annually;

b) The escrow accounts shall be opened by NRBL at a reputable, internationally operating bank and the funds in the escrow accounts shall be released only

(a) as instructed by the Tribunal or

(b) by joint instructions of Niko and Petrobangla; and

c) Petrobangla shall ensure that the USD amounts paid into the escrow account are freely available to NRBL without any restrictions if and when payment to NRBL is ordered by the Tribunal.

Based on a USD to BDT exchange rate of 1 USD = 77.8 BDT, the claim amount due to NRBL to date totals approximately $34.6 million (approximately $27.1 million for invoiced amounts, approximately $6.6

million for accrued interest to September 11, 2014 and approximately $0.9 million for interest from September 12, 2014 to date).

The funds in the escrow accounts are expected to be held pending the decision of the Tribunal in the ICSID arbitration case (the “Compensation Declaration”) between NRBL and Bangladesh Petroleum Exploration and Production Company Limited (“Bapex”), a subsidiary of Petrobangla, with respect to responsibility for and damages arising from the uncontrolled flow problems that occurred in the Chattak field in January and June 2005.

A Tribunal hearing for the Compensation Declaration case is scheduled to occur in November 2015. The Company believes that the outcomes of the ICSID arbitration on the Compensation Declaration and a suit filed in Bangladesh by Petrobangla and the associated costs to the Company, if any are not determinable.