RSM Production Corp. files second arbitration against Grenada, sues Freshfields

By Fernando Cabrera Diaz

April 8, 2010

On March 16, the International Centre for Settlement of Investment Disputes (ICSID) registered a second arbitration initiated by Denver-based RSM Production Corp against Grenada over the latter’s termination of the company’s exclusive oil rights off the coast of the island nation. RSM has claimed that corrupt Grenadian officials bribed by a Russian company terminated the company’s exclusive oil exploration rights.

A day after initiating its second arbitration against Grenada the company sued renowned international law firm Freshfields Bruckhaus Deringer LLP in U.S. Federal Court over the firm’s involvement in defending Grenada during the first arbitration.

RSM lost that first arbitration when an ICSID tribunal found in March of 2009 that the company’s exclusive rights had either expired or were legally terminated by Grenada.* In July of 2009 RSM initiated annulment proceedings at ICSID seeking to overturn the March 2009 decision. These proceedings are currently under way.**

According to The National Law Journal, in its Federal Court lawsuit against Freshfields RSM alleges that the firm knew or should have known that the fees it received for Grenada’s defense were being paid by Global Petroleum Group, a company with corrupt ties to the government of Grenada.

Russian investors, among them a convicted felon, created Global Petroleum Group to bribe Grenadian officials in order to obtain RSM’s oil exploration rights, claims the company. RSM also argues that Freshfields would have known that law firm DLA Piper had previously turned down representing Grenada after due diligence revealed the Global Petroleum Group connection.

Global Petroleum Group has since been awarded the oil exploration rights off the coast of Grenada lost by RSM.

ITN contacted Freshfields and was told by a firm spokesperson that “the claim is without foundation and we will be defending it.” The spokesperson declined to comment further on the case.

ITN also contacted Kelly Pride Hebron who reportedly represents RSM in its suit against Freshfields, but did not receive a response by press time.

RSM had previously made allegations of corruption during an October 16, 2009 procedural hearing in its annulment request at ICSID. At the hearing RSM requested that the committee investigate suspicions of corruption on the part of Grenadian officials. In particular RSM claimed that Gregory Bowen, the then Attorney-General of Grenada, was bribed by Global Petroleum Group in order to terminate Grenada’s contract with RSM.

Though the annulment committee ultimately rejected RSM’s request as being outside its limited jurisdiction, it did confirm that Mr. Bowen had admitted under cross-examination at the original arbitration hearings that Global Petroleum provided Grenada with US$ 2.5 million for the arbitration.

It is unclear whether RSM’s latest arbitration seeks to raise the same corruption allegations.

According to Grenada Today, RSM CEO Jack Grynberg previously sued Mr. Bowen and Global Petroleum Group principals Mukhail Fridman, Len Blavatnik and Lev Korchagin in New York District Court for US$ 500 million over the lost exploration rights.

*Read previous ITN reporting on RSM annulment proceedings: http://www.investmenttreatynews.org/cms/news/archive/2010/02/10/icsid-finds-that-corruption-has-no-place-in-annulment-proceedings.aspx)

**Read ITN reporting on ICSID tribunal’s March 2009 decision dismissing RSM’s first claim against Grenada: http://www.investmenttreatynews.org/cms/news/archive/2009/03/26/icsid-tribunal-dismisses-rsm-production-corporation-s-claim-against-grenada.aspx)

Sources:

“Freshfields Sued in International Racketeering Case,” by Jordan Weissmann, The National Law Journal, March 29, 2010

“U.S. Law firm files defense for Bowen,” Grenada Today, May 19, 2007:  http://www.belgrafix.com/gtoday/2007news/May/May19/US-Law-firm-files-defense-for-Bowen.htm