‘423. The Claimant claims full compensatory damages for breach of the five years extension of the PSA [Production Sharing Agreement] allegedly granted by the Council of Ministers of the Government of [Respondent State]. More specifically, it contends that it is entitled to be placed in the same position in which it would have been had [Respondent State] not breached the five-year extension. Its position is that if [Respondent State] had recognized the existence of the extension agreement as it should have done, [Claimant] would have produced and sold oil from Block [1] up to [the end of the extension]. It consequently requests the value of the volume of oil it would have been entitled to during the five-year extension. However, since the Arbitral Tribunal has found that no extension of the concession took place, [Claimant] cannot be entitled to damages for breach of the allegedly extended concession, as such.

424. However, [Claimant]’s claim for damages … is advanced on other legal bases than the breach of the allegedly extended concession. [Claimant] contends that [Respondent State] is estopped from denying that the extension took place because:

- [Respondent State]’s own conduct precludes it from contending that the extension was not final and binding because the Prime Minister, [the Minister] and members of the [Ministry] represented to [Claimant]’s representatives as well as to third parties that the PSA had been legally extended.

- [Respondent State] is precluded from denying the effectiveness of the extension as it did not use its best efforts to have the PAA [Partial Amendment Agreement] ratified.

Finally, the Claimant also contends that [Respondent State] is separately liable to [Claimant] for breaching its international obligations in respect of foreigners and their property.

425. This last additional legal basis relied upon by [Claimant] to claim damages is of no avail to it because it fails on the facts. The alleged breach by [Respondent State] of its international obligations in respect of foreigners and their property cannot take place in circumstances where the concession was not extended beyond [its original term]. If [Claimant] had no right to an extension, it was not deprived of any property by [Respondent State]’s decision not to extend the concession.

426. The two additional legal bases relied upon by [Claimant] to claim damages are grounded on the concept of estoppel. The Claimant points out that the doctrine of estoppel is applicable to the instant case as it is included within the rubric of good faith, contained in the Civil Code of [the Respondent State]. Consequently, the Claimant is of the opinion that it is entitled to compensatory damages on this alternative basis.

427. The application of the doctrine of estoppel is not objected to by the Respondent. On the contrary, it asserts that “it is common ground between the parties that general principles of goodwill and good faith apply to the parties’ relationship as a matter of [the Respondent State’s] law and further that those principles are sufficiently wide to embrace the equitable doctrine of estoppel”. However, the Respondent suggests that this doctrine is not necessarily the most appropriate in the instant case. For instance, it underlines that if “the parties did not agree to a binding extension, the use of estoppel to treat the extension as if it were binding undermines contractual principles”. [Claimant] cannot contend that [Respondent State] is partially estopped from relying on Article 27 of the REA [Renewal and Extension Agreement] so as to be precluded from denying that there was a binding extension on original terms. [Respondent State] explains that the difficulty hereby is for the Claimant to demonstrate that [there] existed a clear and unequivocal representation that indicated that the Ministry no longer required exhaustion of the constitutional procedures. For it, [Claimant] failed to establish the necessary representation and the necessary reliance on that representation.

428. The Arbitral Tribunal is satisfied that certain aspects of the doctrine of estoppel may be applicable to this case as part of the general principle of good faith, while the technicalities of the doctrine as applied in the common law jurisdictions should be disregarded. Indeed, Article XXII(j) of the PSA reads: “This Agreement for such arbitration shall be given effect and shall be interpreted and applied in conformity with principles of law common to [Respondent State] and the United States and in the absence of such common principle, then in conformity with the principles of law normally recognized by civilized nations in general, including those which have been applied by International Tribunals.” The doctrine of estoppel is not a principle of [the Respondent State’s] law. However, the broader concept of good faith, which in any case encompasses the doctrine of estoppel is a principle of law common to [the Respondent State] … and the United States and, thus, is applicable to this case.

429. Additionally, Article XXII(j) of the PSA refers to the “principles of law normally recognised by civilized nations on general” may also be relied upon in the absence of principles common to [the Respondent State’s] law and US law. Although both [the Respondent State’s] law and US law recognize the good faith principle, no evidence has been brought to the Arbitral Tribunal of an identity of the two laws in the application of the principle. [Claimant] has referred to the UNIDROIT Principles and, while arguing that such principles would be inapplicable as they were not chosen by the parties, [Respondent State] points out that [its] law is silent as to the precise content of that duty of good faith and accepts that it is legitimate for the Arbitral Tribunal to have regard to analogous principles of international law.

430. As stressed by Mr Claude Reymond, the UNIDROIT Principles "offer reasonable solutions to respond to the needs of the modern economy in light of the experience of some of the major legal systems."1 In ICC case no. 71102 in 1995, the Arbitral Tribunal stated:

The reasons why this Tribunal considers the UNIDROIT Principles to be the central component of the general rules and principles regarding international contractual obligations and enjoying wide international consensus, which constitutes the proper law of the Contracts, are manifold: (1) the UNIDROIT Principles are a restatement of international legal principles applicable to international commercial contracts made by a distinguished group of international experts coming from all prevailing legal systems of the world, without the intervention of states or government, both circumstances redounding to the high quality and neutrality of the product and its ability to reflect the present stage of consensus on international legal rules and principles governing international contractual obligations in the world, primarily on the basis of their fairness and appropriateness for international commercial transactions falling within their purview; (2) at the same time, the UNIDROIT Principles are largely inspired [by] an international uniform-law text already enjoying wide international recognition and generally considered as reflecting international trade usages and practices in the field of the international sales of goods, which has already been ratified by almost 40 countries, namely the 1980 Vienna Convention on the International Sale of Goods; (3) the UNIDROIT Principles are specially adapted to the contracts being the subject of this arbitration, since they cover both international sale of goods and supply of services; (4) the UNIDROIT Principles (see their Preamble) have been specifically conceived to apply to international contracts in instances in which, as it is the case in these proceedings, it has been found that the parties have agreed that their transactions shall be governed by general legal rules and principles; and (5) rather than vague principles or general guidelines, the UNIDROIT Principles are mostly constituted by clearly enunciated and specific rules coherently organized in a systematic way …

Thus, this Arbitral Tribunal will refer to the UNIDROIT Principles where appropriate, where no common principles between [the Respondent State’s] law and US law are established.

431. The UNIDROIT Principles indeed contain provisions regarding fairness, such as good faith and inconsistent behaviour. On one hand, Article 1.7 of the UNIDROIT Principles states that: “Each party must act in accordance with good faith and fair dealing in international trade.” On the other hand, Article 1.8 provides that: “A party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to its detriment.”

432. [Claimant] alleges that [Respondent State] is precluded from denying the effectiveness of the extension on the ground that the PAA did not receive parliamentary approval because it failed to use its best efforts to have the PAA ratified. Doing so, [Respondent State] would have breached the prohibition to act inconsistently and violated its good faith duty. [Claimant] particularly relies upon the fact that [Respondent State] would have withdrawn the PAA from Parliament under a false pretext, preventing it to [sic] either ratify or reject the PAA by a vote. Moreover [Claimant] is of the opinion that [Respondent State] from the beginning should have informed the Parliament of the … signature bonus as it represented a major economic advantage for [Respondent State]. Last, it stresses that given the Claimant’s acceptance of the conditions imposed for an extension, the [Respondent State’s] Government was, under the PSA, contractually required to grant the extension. On the other side, [Respondent State] objects to [Claimant]’s allegations and argues that since parliamentary ratification of the PAA was a condition precedent to the extension, [Respondent State] could not have agreed or insisted on the original terms of the PSA.

433. The Arbitral Tribunal agrees that if it were established that the Government of [the Respondent State] and, more specifically, the [Ministry] had failed to make its best efforts to obtain the ratification of the PAA by Parliament, [Claimant] would be entitled to damages. Those damages would not amount to the value of the volume of oil it would have been entitled to during the five-year extension, claimed by [Claimant], because [Respondent State] indeed did not have a positive duty to convince Parliament. Its obligation was not an “obligation de résultat”, a concept of the civil law legal family to which [the Respondent State’s] law belongs. But [Claimant] would be entitled to the value of the chance lost to obtain the extension.

However, the Arbitral Tribunal finds that [Claimant]’s position is factually wrong. The Ministry did submit the PAA to Parliament with a view to obtaining its approval and ratification. It even wrongly stated that the extension was already binding to encourage Parliament to focus on the terms of the PAA only. Even if the Ministry’s strategy in order to obtain the entering into force of the extension of the concession is questionable, since it implied that Parliament would not be informed of the assignments, [Claimant] accepted it when accepting the division of the Agreement into a REA and a PAA. As soon as the Parliament decided that it wanted to see the REA, which included the assignments, this strategy was bound to fail and it was very unlikely that Parliament would have ratified the PAA and the extension with the assignment. The Government did not have any other choice than to submit the REA to Parliament. In the circumstances, it is difficult to imagine [what] further effort the Ministry could have used to obtain the ratification, not only of the PAA but also of the extension with the assignments. Consequently, [Claimant] cannot obtain compensation on the ground that [Respondent State] would be precluded from denying the effectiveness of the extension as it did not use its best efforts to have the PAA ratified.

434. [Claimant] also contends that [Respondent State] is precluded from arguing that the extension was not final and binding because the Prime Minister, [the Minister] and members of the [Ministry] represented to [Claimant]’s representatives as well as to third parties that the PSA had been legally extended. [Claimant] argues that such behaviour would entitle it to the damages it is claiming, as it should be treated as if the PSA had been extended and then breached. Such a claim finds a basis in the already mentioned Article 1.8 of the UNIDROIT Principles which is a general application of the principle of good faith and fair dealing. Article 1.8 deals directly with the [Claimant]’s claim presently discussed. As pointed out in the UNIDROIT official commentary, Article 1.8 indeed “imposes a responsibility on a party not to occasion detriment to another party by acting inconsistently with an understanding concerning their contractual relationship which it has caused that other party to have and upon which that other party has reasonably acted in reliance. The prohibition contained in this Article can result in the creation of rights and in the loss, suspension or modification of rights otherwise than by agreement of the parties. This is because the understanding relied upon may itself be inconsistent with the agreed or actual rights of the parties.”

435. Thus, under this Article, a party is prevented from acting towards the other party in a manner which would be contrary to its previous behaviour because, in doing so, the other party’s understanding of the relationships, on which it relied, would be modified. It is a modern formulation of the principle non concedit venire contra factum proprium, a principle applied in many international arbitration awards. In other words, a party is responsible [for] the consequences of its conduct, its representations or even its silence if the other party suffers damages for having reasonably relied on it.

436. As to the facts, the Arbitral Tribunal has already found that the Ministry adopted an ambiguous and contradictory behaviour: in a first place, it let [Claimant] believe that the extension was granted by approval of the Council of Ministers irrespective of the Parliament’s approval of the PAA terms but subsequently affirmed that no extension was ever granted on old terms as Parliament ratification of certain terms was necessary to have a binding REA. But the Arbitral Tribunal has equally found that the Ministry’s behaviour does not amount to an extension of the PSA whether on old or new terms. Moreover, such ambiguous and contradictory behaviour was not the causation of the non-extension of the PSA and consequently, [Claimant] cannot claim compensation for the damages resulting [from] the same. [Claimant] is entitled only to be compensated for those damages caused by the steps it took, under the form of actions or omissions, in reliance on the ambiguous and contradictory behaviour of the Ministry.

437. In this respect, [Claimant] alleges that, on the basis of the extension which it was taking as granted to it, it completed [an] … exploration programme ... This is in fact not denied by [Respondent State] which recognizes having acquiesced to such performance. It however adds that it was [Claimant]’s choice whether to perform the exploration work immediately or to await Parliament ratification as Article 6 of the REA, dealing with the work programme, was inserted into the PAA. For it, the REA allowed [Claimant] to perform exploratory work prior to the moment when the REA would become binding and the performance of this programme merely gave effect to the parties’ agreement that such work could be done in advance of the moment of the binding effect of the extension.

438. The Arbitral Tribunal notes that in Article 6 of the REA, the parties had agreed that [Claimant] would undertake an exploration work programme no later than the REA effective date ... However, it is true that this Article was also included in the PAA and as such needed ratification by Parliament to become binding. [Claimant] thus had no obligation to perform this work before any decision was taken by Parliament, irrespective of its view as to the extension of the PSA on old terms. Yet, [Claimant] does not contend that it had the obligation to undertake this work but instead asserts that it did so in good faith, because it believed that the extension was granted and because it thought that the PAA would be subsequently ratified. The Arbitral Tribunal is convinced that the Ministry behaviour … largely contributed to [Claimant’s] belief. If that was the case, it would certainly not have under[taken] to start the work programme. Actually, if there was no extension, [Claimant] would have been unable to achieve a return on its investments as a result of a lack of time.

439. This conclusion is confirmed by the fact that the Exploration programme began after the signing ceremony where the REA was signed. Further, [Respondent State] encouraged and participated in the exploration work programme performed by [Claimant], although it was perfectly aware that [Claimant] was solely performing this work because it was confident that the extension was to be granted. … Thus, even though [Respondent State] was perfectly aware of [Claimant]’s exploration work and of the reasons that motivated the undertaking of such work, it did nothing to stop it in good time. On the contrary, it took it a long time before advising [Claimant] to stop spending money on such expenditures.

440. On the basis of the principles of good faith contained in [Respondent State] law and in the light of Article 1.8 of the UNIDROIT Principles, [Respondent State] must be held responsible for the costs of the exploration work performed by [Claimant] ahead of the entering into force of the REA ... Moreover, this work constituted benefits for [Respondent State] to which it was not entitled since the concession was not extended.

441. Even though [Respondent State] denies that [Claimant] has a right to such reimbursement as the incurring of this expenditure resulted, in its view, from work voluntary performed, it does not object to the principle of reimbursing the Claimant. It stated that “on the facts of this case, justice to [Claimant] will be served by redressing the detriment it has sustained in performing exploration work which, if the Tribunal accepts its argument, it would never have performed had it not been induced to believe that the extension was binding”. But it argues that “if the Tribunal is nonetheless satisfied that a clear and unequivocal representation was made and relied upon, the relevant reliance is at most [amount X]”. The idea of refunding the Claimant for its work is therefore not rejected as such. However, the amount that should be allocated is contested by [Respondent State]. It indeed underlines that as this expenditure, sustained while the PSA was still in force, it was Cost Oil that the parties recovered [sic]: if the [costs of the exploration work] had not been incurred, there would have been [the amount of such costs] more by way of profit and thus [Claimant]’s share, after 50% tax, would have been 30%, pursuant to Article VII of the PSA, namely a loss of [amount X]. This is not denied by the Claimant. In fact, when asked at the hearing whether he had any comment regarding that calculation, its counsel answered that “the exploration figures would be cost recovered and I believe that would turn out to be about 30% for us and so those numbers sound right (…) I don’t believe there is any dispute as to that issue.”

442. Therefore, on the basis of the principle of good faith contained in [Respondent State] law and in the light of Article 1.8 of the UNIDROIT Principles, the Arbitral Tribunal will order [Respondent State] to refund [Claimant] [amount X] corresponding to its net exploration costs performed in reliance [on Respondent State]’s behaviour.’

1
Claude Reymond in UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria, ICC Publication No. 490/1, p. 141.

2
Bulletin of the ICC International Court of Arbitration, 1999, Vol. 10/2, p. 39.