F-W Oil Interests Inc. v. Republic of Trinidad & Tobago: A « Relatively Mundane Dispute » after all?

By Elizabeth Whitsitt

November 3, 2009

More than three years ago, on March 3, 2006, Texas-based energy company, F-W Oil Interests Inc. (“FWO”) lost its fight against the Republic of Trinidad & Tobago (“T&T”) arising out of alleged breaches of the 1996 US investment protection treaty with the Caribbean nation (the “USA/T&T BIT”).
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The decision, recently published, reveals that the American company failed to convince the presiding arbitral tribunal that it had an “investment” as defined under the terms of the relevant BIT.

Commencing arbitration against T&T in the fall of 2001, FWO’s 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’s economy.

The Soldado Fields were initially controlled by the state with Petrotrin, T&T’s 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.  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.  Accordingly, Trinmar commenced a public tender process inviting potential bidders to “participate in Trinmar’s West and South West Soldado Fields.”  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 “mutually agreeable operating agreement” with Trinmar.

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 “Service Contractor”, remunerated by a rate per barrel of oil produced, FWO attempted to obtain certain guarantees from Trinmar.  Specifically, it asked for a “guarantee or other form of security to secure payment to FWO under the anticipated contract” and “assurances 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.”

Neither request received a positive response from Trinmar, and eventually FWO received a letter indicating that Trinmar was withdrawing from the negotiations.  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’s ability to conclude the necessary operating agreement.

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.

In addition, FWO later asserted corruption on the part of certain T&T officials as a basis for its claim.  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 “…senior officials of Petrotrin engaged in wrongful conduct that caused Trinmar to breach its contractual obligations to FWO.”  According to FWO those “…officials then commenced a campaign of disinformation designed to force FWO’s removal as a successful bidder and abused their oversight positions in Petrotrin and the T&T government to block Trinmar proceeding with the award.”

Naturally, the inclusion of such claims regarding the conduct of T&T state officials promised to alter the tenor of the arbitration.  As the tribunal noted, “[a] relatively mundane…dispute about the existence of contractual rights…and 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.”

Such an assault never came to fruition, however.  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’s allegations.  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 – and even excluded an account of the documents and evidence devoted to – those allegations from its decision.  Indeed, the tribunal noted that its function was not to “pass 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.”

Having so stated, the tribunal focused its efforts on what it termed “the less dramatic, but intellectually more taxing” 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.

For its part T&T made two submissions in response to FWO’s claim.  Characterizing the costs and expenditures incurred by FWO as “pre-contract expenditures”, T&T first argued that there was no dispute arising out of (relating to) an “investment”, as required by both the ICSID Convention 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.

Reflecting on the first issue, the tribunal commented that such a vital question “…should 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.”  Accordingly, the tribunal determined that “…the notion of an “investment”…[could] only realistically be understood as referring to something in the nature of a legal right or entitlement” and therefore found that FWO’s claim must fail as it had not entered into a binding contract with Trinmar.  Specifically, the tribunal determined that there was one aspect of the Parties’ 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.

In a related analysis the tribunal also examined whether, even in the absence of an “investment”, there nevertheless existed an “investment agreement” under the BIT sufficient to ground FWO’s claim.  The tribunal commented that a dispute of such an “extended kind” may also ground its jurisdiction even though “such a dispute may not arise out of an “investment” very “directly” at all.”  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.

FWO missed an opportunity to ground the tribunal’s jurisdiction on such an “extended” basis, as its arguments on this point continued to focus on whether FWO had acquired contractual rights – assertions that were essentially the same as those already made in relation to whether FWO had made an “investment” in T&T.  Dissatisfied with the arguments presented by FWO and T&T, the tribunal did not elaborate further on this issue except to say that “…it would not wholly exclude the possibility that circumstances might arise under which…a tribunal might conclude that an “investment agreement”…had 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 “investment”…in the strict sense of the term.”

Sources:

Award in F-W Oil Interests Inc. v. Republic of Trinidad & Tobago is available at:
http://ita.law.uvic.ca/documents/FWOilAward.pdf