Two oil firms – Eni Ghana Exploration and Production Limited and Vitol Upstream Ghana Limited – have failed to ‘squeeze’ a whopping USD 915.8 million from the Government of Ghana at the International Arbitration Tribunal in Stockholm, Sweden.
This follows the dismissal of almost all the reliefs they were seeking at the International Arbitral Tribunal, including an order directing the Republic of Ghana and its agency, Ghana National Petroleum Corporation (GNPC), to pay damages amounting to the USD 915.8 million.
Eni and Vitol had prayed the tribunal for the payment of that amount, as losses they claimed to have suffered as a result of alleged breaches of the Petroleum Agreement on the part of the Ministry of Energy (MoE) and GNPC.
The dismissal is contained in a 145-page award finding, order and declaration of the Stockholm Chamber of Commerce (SCC) Arbitration U2021/114 dated July 8, 2024.
The parties were in court under the 1976 Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), with ENI Ghana Exploration and Production Limited and Vitol Upstream Ghana Limited as claimants, and the Republic of Ghana and the GNPC as respondents.
OPERATIVE PART
The Tribunal, having interrogated the issues, outlined the operative part. It declared, among others, that “the Republic of Ghana breached the Petroleum Agreement by issuing the Unitisation Directives in the circumstances in which they were issued,” but ordered that “each party shall bear its own costs.”
The Tribunal “orders the Republic of Ghana to pay to Eni Ghana Exploration and Production Limited and to Vitol Upstream Ghana Limited EUR 189,900 for the costs of the Tribunal and SCC”, the tribunal ruled and “dismisses all other reliefs.”
CLAIMANTS’ RELIEFS
The Claimants had requested the Tribunal to declare that the First Respondent (MoE) breached the Petroleum Agreement by virtue of its conduct in issuing and/or refusing to withdraw or prevent reliance by third parties on the Unitisation Directives.
They also sought for a declaration that the Second Respondent (GNPC) breached the Petroleum Agreement by virtue of its conduct in support of the First Respondent’s issuance and/or refusal to withdraw or prevent reliance by third parties on the Unitisation Directives.
Eni and Vitol, the claimants, requested an order that the First Respondent, the Republic of Ghana, notify the High Court, Court of Appeal and Supreme Court of Ghana that the Unitisation Directives were issued in breach of the Petroleum Agreement.
The claimants also wanted an order that the First Respondent notify Springfield that the unitisation directives were issued in breach of the Petroleum Agreement.
“Order the Respondents to pay damages in an amount of USD 915.8 million (or such other amount as the Tribunal sees fit) for the losses suffered by the Claimants arising out of the Respondents’ breaches of the Petroleum Agreement,” one of the reliefs said.
They also sought for an order for the respondents to pay all costs and expenses of the arbitration, including the fees and expenses of the claimants’ counsel and any witnesses and/or experts in the arbitration, the fees and expenses of the tribunal, and the fees of the SCC.
Also, an order for the Respondents to pay compound interest on any and all sums awarded to the Claimants at a rate and at such rates as the Tribunal may consider appropriate, both in relation to the periods prior to and after the issuance of a Final Award.
RESPONDENTS’ RELIEFS
In response to above reliefs, the government of Ghana, through the Attorney General argued that it had not breached any obligation owed to the claimants and that their request be denied in their entirety with prejudice.
The government of Ghana also contended that should it be found to have breached any obligation owed to Claimants, Claimants’ request for damages should be denied with prejudice in its entirety because it is inadmissible or otherwise impermissible.
Also, request for damages should be denied because Claimants have not met their burden to prove actual loss proximately caused by Respondents.
The government also drew the court’s attention to the fact that the claimants had breached the Offshore Cape Three Points Area (OCTP) Petroleum Agreement and that she should rather be awarded US$ 84.15 million (or such other amount as the Tribunal sees fit) to compensate her for the loss sustained as a result of Claimants’ breach.
The Attorney General also prayed the court for the Claimants to pay simple interest on any and all sums awarded to respondents at the prevailing Bank of Ghana interest rate.
“Claimants are ordered to adhere to the Minister of Energy’s lawfully-issued Directives, including the April 2020, October 2020 and November 2020 Directives; Claimants are ordered to pay all costs and expenses related to this arbitration,” the government prayed the court.
CLAIMANTS’ POSITION
During the hearing of the case, the claimants argued that the government of Ghana through the Ministry of Energy wrongly relied on Glamis Gold and other investment awards to assert that “for the claims to be ripe, the measures must have interfered with a claimant’s property interest and harmed the claimant.”
But in the view of the Tribunal, this argument misses the essential point that expropriation and breach of contract arise from wholly different systems of law.
The Tribunal said that, in any event, the claimants dispute the Respondents’ position that they have suffered no present harm because the Unitisation terms imposed by the MoE have not yet been enforced.
The Tribunal contended that this position is at odds with the Respondents’ simultaneous arguments that the Unitisation Directives “carry the force of law.”
The Tribunal also referenced Government of Ghana’s argument that the Claimants fail to prove that they suffered any harm proximately caused by her alleged wrongful conduct.
That foremost and first requirement for an award of damages under Ghanaian law is that a claimant establishes actual loss or harm suffered as a result of the wrongful conduct. This entails that the claimants must prove their loss by producing “sufficient, strict, and credible evidence” of all damages incurred.
The Tribunal also took note of respondents’ claims that ENI and Vitol have no reliable method for proving but-for causation because the alleged harm on which their damages are based has not occurred.
“The damage claims are based on Unitisation, which has not yet been enforced, and the terms and conditions of which have not become final. Therefore, under the lex arbitri, and in particular under the Swedish Code of Judicial Procedure, which bars claims where payment is not yet due, the claimants’ damages claims are inadmissible,” the Tribunal wrote.
TRIBUNAL ANALYSIS
The Tribunal said that both ENI and Vitol damages analysis was based on the assumption that the Unitisation terms would be implemented and that the tract participations would not be adjusted. The Tribunal said that it was correct that, as the claimants argue, in principle, damages could be assessed based on contingencies.
However, the claimants’ damages claim was not based on contingencies related to the enforcement of the Unitisation directives and the absence of the redetermination, adding that it takes the potential occurrences as if they were established facts.
“Unsurprisingly, the claimants have not proven that these future facts will necessarily occur,” the tribunal analysed.
It added that the unitisation terms also provide that any party with a positive balance, i.e., a party which has paid costs in excess of its tract participation, shall immediately be compensated by the party with a negative balance, i.e., a party which has paid costs below its tract participation.
This adjustment mechanism, according to the tribunal, is referred to as the True-up Payment. It cited the witness for the claimants, Dr. Amor, as having calculated the True-up Payment that is immediately due by the WCTP2 partners to the OCTP partners at USD 838 million, but assumes that the claimants will not collect this payment. The Tribunal found that the latter assumption is inconsistent with the assumption that the Unitisation terms will be enforced.
The Tribunal held that if the ongoing judicial review litigation and, irrespective of this award, the Unitisation Directives remain in force and end up being enforced, it was reasonable to assume that the terms regarding the True-up Payment will also be enforced.
“Therefore, the Tribunal considers that the damages claim currently before it is grounded on unsubstantiated assumptions and must be dismissed on this threshold basis,” the Tribunal held.
The Tribunal, however, noted that the determination was without prejudice to the Claimants’ right to claim damages if, despite the award, the wrongful Unitisation Directives are enforced, provided that Claimants are able to establish their loss(es) and evidence of the quantum of their damages claim(s), whether arising from the failure to receive the True-up Payment or a failure to redetermine the arbitrarily determined initial tract participations or otherwise.
“The above reasoning does not apply to the claim for so-called process losses. However, the Tribunal notes that the claimant has not sufficiently established the quantum of the process losses or the fact that they were directly caused by the Unitisation Directives. The calculation of the process losses is based on estimates that are not sufficiently substantiated with contemporaneous records, such as time sheets or calculations.
The claimants and their expert have also failed to sufficiently explain the basis for the calculation of the rates of the management, based on which they calculated the process losses. Therefore, the Tribunal dismisses this segment of the alleged damages,” the Tribunal stated in the judgement.
