Section 3- The formation of state contracts: case of
petroleum contracts
To understand how a petroleum contract or a state contract is
formed requires to understand what we mean by a contract. A contract is a legal
document that states and explains a formal agreement between two different
people or groups, or the agreement itself. If the French Civil Code (éd.
Dalloz 2000), for example in its article 1101, defines a contract as follows:
"The contract is an agreement by which one or more persons are under an
obligation, to one or more others to give to or not to do something"
but in our case here, I would advise you to not to see in the state
contract or petroleum contract (specifically in the area of natural resources),
as a kind of agreement between two or more individuals. We are discussing our
thesis in the framework of International Investment Law and, we guess that, it
would be better to know that the petroleum contract can be signed only between
sovereign state worthy of the name, and one or more foreign private petroleum
companies. However, if we want this contract being formed and deserves the name
of petroleum contract, which is basically a state contract, it would be
preferable to identify the legal status of each contractor. This is what will
help us to determine the applicable legal regime (which will be discussed in
chapters to come)
and clauses that can be included in the petroleum contract
without forgetting to specify the various stages of negotiation of this
contract.
1-Legal status of the contracting parties
Study this section in this way will lead us to identify the
statutes of contractors or co-contractors. We know that in the petroleum
contracts, there are two types of contractors: State and foreign private
company. Let us start first with the first contractor: the state.
1-The State
We would not like the notion of the state being seen in the
narrow sense of the word and in the concrete terms as the French glossary of
legal terms22, as: «the whole of Political
bodies, of leaders, those who ho govern, in opposition to those who are
governed, (for example, when we say that the state is pervasive, it should be
reformed, etc.)». We also know that the state is an entity and is
represented by the institutions or otherwise speaking, it's a part of a large
country with its own government, such as in The Republic of Congo, China,
Canada, France, Germany, Australia or the US, etc. But in the subsection of
this thesis, the State of which I am referring can be seen here only in the
legal sense. The State is the only legal entity under international law as is
its other partners, international legal persons namely other states and public
international organizations, and is holder of the rights of access to natural
resources contained in its subsoil's or seabed's territory. Here is this
beautiful detail concerning the definition of the State that I invite you to
read very carefully: "... State, owner of the rights of access to natural
resources, especially petroleum resources, contained in its subsoil, its
islands, its territorial waters and its seabed, its internal waters, its
exclusive economic zone and its mainland " even if some notable exceptions can
be observed in the USA, where the problem of respect of the right of land
ownership is the burning issue. You should know that in this country, the
landowner may be either an individual or a federal agency. We can't neglect
this problem today in worldwide market of petroleum laws.
The foreign private company which wants to exploit the
petroleum resources of any kind of country must sign the contract with the
State or the landowner (case of USA) of mineral resources. It would be to a
form of bicephalous or dual ownership regime: on the one hand, the one which
the majority of states apply and where the rights are acquired by the state
contracts favoring the State as the only owner of natural resources
(hydrocarbon) contained in its subsoil and its seabed; and on the other hand,
the one of the USA where the law on hydrocarbons contained in the subsoil
depend to the will or the decision of the owner. That's the reason that we will
examine both cases in the edifying way.
1.1- The State: subject of international law and owner of
the rights of access to the hydrocarbon resources contained in its
territory.
The State which must sign a petroleum contract and which I refer
here is the government of a state in a strict sense of the term, without
underlining into its political or administrative
22 Le lexique des termes
juridiques, 12è édition, 1999, Dalloz Campus, Paris, France:
« ensemble des organes politiques, des gouvernants, par opposition aux
gouvernés (par exemple quand on dit que l'Etat est envahissant, qu'il
faut le reformer, etc.) »
subdivisions (state members of a Federal Government for
instance, provinces, municipalities, public or private institutions, public
companies, etc.). Here the petroleum contract is negotiated, signed and
executed or applied by two co-contractors which don't have the same legal
status. It is the government of a state which must sign this contract that will
be worthy of being called petroleum Contract. Here is the formula which will
help you to better understand what we call by a petroleum contract in the sense
of State contract: Government of a sovereign State + a foreign
petroleum private company or corporation) = petroleum contract.
Since the international investment law in the natural
resources sector is studied in the context of international economic law, some
lawyers may be tempted to define the Contracting State in the economic sense.
We know that in the framework of domestic law and more particularly in
administrative law, the state can be seen as a public administration or public
authorities; we also know that in this way, the state can behave as an
individual and apply economic activities and trade in the same way as a private
company. This way of acting sometimes allows it to be called "state contractor
or commercial" and to be subject to public or private law according the nature
of the contract and contractors with its nationals. But in our case in this
subpart, if we have to lead our discussion within the framework of petroleum
investments and more particularly in the International Investment Law, the
State as such by signing this contract with a foreign private investor behaves
as a host state of the investment. I would ask you, constantly, to see in that
state contractor and at the same time the host state of investment as the
government of a sovereign state, owner of natural resources such as petroleum
contained in its subsoil. This is the only sovereign state that has
jurisdiction to grant a foreign company the rights or the offer of access to
its petroleum resources (crude oil) in its subsoil through a license. It's this
state, with the status of public authorities, which has the absolute monopoly.
It's this state which must also administratively speaking control the
conditions for putting national resource at the foreign petroleum industry
disposal. This is moreover the practice that we can find in the most states of
the world, the rights on the natural resources contained in the subsoil of its
territory (petroleum and others) belong to the State, regardless of the
ownership of rights on the surface of the
land23.
In spite of this insistence on the notion of the Contracting
State which can be viewed as the government of the state, it sometimes happens
that we can be in front of another situation of the concept concerning the
notion of the Contracting State of the State contract. The State can charge
some of its bodies or its companies to sign petroleum contracts. As you can
note it in this case, there is the blessing or the agreement of the Government
to act on its behalf. As far as we are concern and rigorously speaking, I'd
like to advise you not to confuse, legally speaking, the state itself to a body
(agency or institution) of State. You must not also confuse
23 In the Netherlands, the
owner of the Land owns the resources in place, but the state has the monopoly
over the granting of rights to explore, drill and lay out; in Germany, land
resources belong to anyone but the state has a monopoly on the granting of
concessions, to which are attached exclusive rights. See B. TAVERN, «An
Introduction to the Regulation of the Petroleum Industry» (1994), p.
11-12.
a state in case it would have co-contractors as the body of
state (a government-owned firm or Parapublic Company or a company of State) and
a foreign private company. The case law on this point has never been unanimous
for the assimilation of contracts signed by government agencies and private
foreign companies as "state contracts." Case law in several cases has never
been united on this assimilation. That's the case of:
-Case law "Sapphire" of March 15,
196324;
-Case law «NIOC», Arbitral Award of
the Court of District of the Hague on April 15,
196525
Thus, in front of the behaviors of the decisions of arbitral
awards of Sapphire and NIOC cases law, the Court of Appeal of The Hague will
take a decision going against theirs;
-Case law NIOC of June 28, 1968, in that
decision, the Court of Appeal of the Hague cancelled the above mentioned case
law (April 15, 1965) of the Court of District of the Hague and considered the
NIOC as a private legal entity who has acted jure
gestionis26. This decision simply wanted to tell us
that there is certainly a legal difference between a state contract in the
sense that it would have as a contracting party the State itself and an
contract between a government agency and a private Foreign
company27.
However, the change of the status can intervene in exceptional
cases when the State does not become other than the regulator or the guide of
the economic activities within the framework of the current trend of free
market economy or neoliberal economy with its waves of privatization of
state-owned firm (or a public company). In front of this situation, we can note
that the State sometimes loses its status as the Contracting State of State
Contracts (these kinds of contract are also called by contracts for economic
development). But there are some strategic domains such as the petroleum one
(that we are explaining you) or international loans, the production or the
supply of arms that remain in the list of contracts that only the State (or the
official Government) can conclude with foreign private
investors28. Far from wasting our time or
getting lost in many examples of the various forms of state contracts, you have
to understand that what interests us so much here are the petroleum
contracts.
24 See. award Sapphire
International Petroleum Ltd. v. National Iranian Oil Company, on March 15,
1963, in Répertoire de la jurisprudence arbitrale internationale, vol.
III, 1945-1988, p. 284
25 NIOC =National Iranian Oil
Company. See. International Legal Materials, 1966, p. 477. In this sentence,
the Court also recognized, as the Sapphire sentence had recognized it, with the
NIOC the quality of a body of the Iranian State
26 International Legal Material,
1970, p. 152
27 This terminology
incontestably more exact was used by J.-F. Lalive in its study: Un
récent arbitrage suisse entre un organisme d'Etat et une
société privée étrangère , Annuaire suisse
de droit international, 1962, pp. 273 et s
28 Maurice Kamto, in his article
entitled: " la notion de contrat d'Etat: une contribution au débat - les
Etats dans le contentieux économiques international, I. Le contentieux
arbitral.
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