Arbitrating Overseas Oil and Gas Disputes: Breaches of Contract Versus Breaches of Treaty

Abstract

Although a contractual agreement typically forms the foundation of an overseas oil and gas project, it is important for energy firms to understand that international investment law has developed specifically to provide foreign investors with rights which extend beyond such instruments. An oil and gas contract may define the basic nature of an energy firm’s participation in an overseas project, but where an international investment treaty is available the firm will enjoy rights additional to the individual terms of the contract. Therefore, where an overseas oil and gas dispute arises, it is crucial for the energy firms involved to clearly understand the full scope of their rights and protections. This includes full appreciation of the different circumstances in which a breach of contract claim can be brought before an international investment tribunal, as well as the different circumstances in which such a claim may be problematic. This also includes full appreciation of the different circumstances in which it may be advisable to abandon breach of contract claims altogether in favor of entirely different causes of action available under an investment treaty. Breach of contract claims can be brought under investment treaties which include either a broad dispute resolution clause (DRC) or an umbrella clause. However, two significant impediments to the availability of these provisions mar their potential utility to oil and gas firms. First, the existence of a forum selection clause in the operative contract can function to prohibit the investor from arbitrating a claim that the contract has been breached if the forum before which the claim is pursued is different from that stipulated. Second, an investment tribunal may refuse jurisdiction to hear a breach of contract claim where a state-owned company or state agency is the counterparty to the contract rather than the state itself.