In a succinct and elegant statement, Thomas Dye defines public policy as “anything a government chooses to do or not to do” (Dye, 1972: 2). Public policy therefore has a wide reach and affects all sectors of society. It encompasses laws, any actions of government, funding priorities and the regulations that reflect given positions, attitudes, cultural ideals or accepted rules (see Your Dictionary; LoveToKnow Corp (1996 – 2019)). When, for example, courts and lawmakers determine whether to pass a law, give something priority or rule in a certain way, they do so due to public policy and concurrently shape public policy. An example of this is when courts refuse to enforce contracts related to illegal behaviour (see YourDictionary; LoveToKnow Corp (1996 – 2019)).
Governments are the main agents of public policy though the private sector and nongovernmental organizations can contribute. Even when these actors contribute to public policy, it is government that determines the frame within which they do and whether there is implementation (Howlett & Cashore, 2014).
What would the legal system be encouraging by letting the Exxon contract stand?
Firstly, it would set precedents for subsequent major contracts with international companies and a number of those precedents would be undesirable. (Since this article was in the process of being finalized the country has learnt of a contract with less than even the ridiculous 2 % royalty agreed with Exxon). The wording of the contract is debatable in fundamentals. Christopher Ram has set these out in his series of articles. The effective date of the contract is usually an anchor concept in a contract, one which is usually a point of reference for almost everything else therein. One only has to consider the recent arguments in the press focusing on what the agreement calls “pre-contract costs”. Without clarity on the effective date we have no idea what is “Pre-”, “During-” or “Post-” contract. To quote Christopher Ram: [First the Effective Date in the 1999 Agreement: “The effective date shall be the date on which this Agreement is duly signed.” Now here is how Effective Date is defined in the 2016 Agreement:
“30.1 This Agreement shall enter into force and effect on the date in which the petroleum prospecting license in respect of the contract area is in full force and effect (“the effective date”). The 1999 petroleum agreement shall continue to be legally binding on the parties until it terminates or is terminated in accordance with its terms and the bridging deed.” Any attempt to make sense of the provision by the definitions in Article 1 (Article 1-Definitions “Effective Date” means the date on which this Agreement comes into force pursuant to Article 30) is frustrated by the circuitous suggestion to the reader to go to Article 30!] (“Article 30 – Effective Date 30.1 This Agreement shall enter into force and effect on the date in which the Petroleum Prospecting Licence in respect of the Contract Area is in full force and effect (the “Effective Date”).
This much is clear: what should be a simple statement of fact, or at most, dependent upon a clear condition that can be factually established, requires an investigation to settle. We do not believe this is the kind of thing that the law should allow to become settled legal practice.
Secondly, as Ram points out ‘there is another missing piece [of the contract]: the “bridging deed” referred to in the new agreement.’ This “bridging deed” has not been published although what we must assume is the rest of the contract is. The public policy question to ask is “Is it in the interest of the country to hold in secret a critical part of a public contract once having published the remainder?” If so, can it be held until 2050? Given what we have revealed, it would appear to be very unwise to trust anyone who would sign such a contract to keep a document bearing upon the arrangement away from the eyes of the public until say 2050.
Thirdly, with the laundry list of risks identified and the existential implications for the country as a whole, does a minister have a right to pick and choose which parts of a contract he may disclose short of competitive information belonging to the company involved?
Fourthly, do the minister and a private company have the privilege of drafting clauses which undermine and reduce to ineffectiveness the very laws the contract professes to honour and base its existence upon? An egregious example of this is the relinquishment provision. Again, to quote Ram “Under Article 5, the legal requirements governing relinquishments have been reduced and exclusions increased. To make sure that the benefits of the 1999 Agreement are not lost, a new Article 5.7 has been inserted providing that “Notwithstanding the provisions contained in Article 4.l (a), (b) and (c) or any other provision to the contrary in this Agreement, the Contractor shall not be required to relinquish any prospecting area consisting of a discovery made pursuant to the terms of the 1999 Petroleum Agreement.
TIGI has lauded the government for making the contract public, but the discovery that the bridging deed is still held in secret raises a new question about the reason for continuing to withhold it. This undermines the attempt at bringing some measure of transparency (even after the fact) to the sector.
Discretion to remove discretion
Under Article 8.9 of the contract which deals with the renewal of a Petroleum Production Licence, the insertion of a clause to the effect that “The application for renewal shall be granted as long as the Contractor is in good standing under the Licence” seems to have the intent of frustrating the discretion provided by the Act to the Minister. This discretion not to grant the license or a renewal of the license happens to be in respect of issues that have turned out to be topical and critical to the extent that they have gripped the attention of all stakeholders (except the government apparently).
For example, S31 of Cap 65:10 (Petroleum and Production Act) provides for the application for a grant or renewal of a production license not to be approved unless the applicant’s proposals with respect to the procurement of goods and services obtainable within Guyana are satisfactory. The law contains clear safeguards for (a) material local content commitments to be made (at the start of an agreement) and review of commitments (at renewal stage) and the licensee to be therefore held to account.
In article #3 of this TIGI series we discussed at length the issue of ministerial discretion and showed that in public law it is a well-established principle that unfettered discretion does not exist. And so, it would be expected that we do not believe that the court will support the minister’s presumption to an exercise of discretion that even removes his own discretion in favour of a private company!
Fifthly, in article #7 “A major oversight or willful blindness” of this series, we presented arguments to establish that the contract was illegal by virtue of the mere fact that it was established without public tender as required by the Public Procurement Act 2003 and the Constitution of Guyana. (We noticed this position was since challenged by some and we will address it subsequently). The public policy implications of the courts not even examining this contention let alone allowing such a glaring breach of the constitution to stand are unthinkable.
For more than one reason, we are not intimidated by the jurisdictional implications of the stability clause(s). We are aware that international arbitration principles (which we shall discuss more extensively in a subsequent article) do not look favourably at clear attempts to circumvent legislation already in place when a contract is entered.
In a blog from Turkey, Zuvin and Akgun (2015; Serap Zuvin Law Offices) highlights that there should always be cognizance that “arbitration is opted for its neutrality, speed, economy and privacy, and not as a method to avoid mandatory laws”. They indicate furthermore that notwithstanding the fact that “increased use of international and transnational public policy will further the parties’ intentions to arbitrate disputes … it also could spell the ultimate downfall of international arbitration.” They also warn that international arbitration “cannot and must not become a vehicle through which parties attempt to avoid mandatory national laws, otherwise, international arbitration will lose its national backing, and awards will not be enforced.”
Furthermore, we believe the mindset of the drafters has been more or less consistent in their attitude of circumventing the very national laws they claim to be acknowledging as controlling their elaborate documents. It should not be difficult to identify the elements and effects of what is called “unconscionability” by the courts. A recent Manitoba Queen’s Bench decision – Quick Auto Lease v Jason Hogue et al., 2018 MBQB 126 (see Appelt & Major, 2018) has shed light on the role of unconscionability in the context of lending transactions, and what creditors and debtors should be aware of in entering same. Unconscionability is relevant where inequality in bargaining power between negotiating parties enable the dominant party to leverage a lopsided deal. The said report points out that “unconscionability is a concept that can play a role in all contracts (as making available an equitable remedy)”.
It is this same attitude of unconscionability that seems to be at work in managing to stretch a contract signed in 1999 that should have been at most applicable to remnants of the 26,800 square kilometers (if the full effect of the relinquishment and renewal clauses had been allowed to prevail) to morph into a new contract in 2016 leaving all the area intact under a single licence.
It is very consistent with the stretching of the two original parties – Government of Guyana and Esso – as signatories to the 1999 contract, to become four – Government of Guyana, Esso, Hess and CNOOC/Nexen – in the 2016 contract and at the very beginning the stretching of a maximum of 60 blocks under one licence to allow 600 instead.
Of course, it is also consistent with the stretching of a simple concept in a contract, which is usually hard to make the subject of controversy, i.e., the effective date of the contract, into an uncertainty that will create work for lawyers.
We believe we are demonstrating that whether arbitrated or litigated, the drafters are likely to find that in their attempt to hogtie the people of Guyana, they might have been too clever by half. The move to an external jurisdiction on the expectation that that jurisdiction is more likely to bring to bear internationally accepted principles and practices of arbitration, is likely to run aground when the arbitrators are forced to recognize that at the base of the Exxon contract is an act of discretion and a result that applies nowhere else on earth – the stretching of a maximum of 60 to allow 5 times as much under a single licence (Again, not 10 times as so often misrepresented – this appears to have been a miscalculation on the drafters’ part).
Competition and Fair Trading Act (Cap 90:07)
At the time of writing we have noted that the government has passed legislation to extend tax-free status to a number of oil companies. We have said that all the contracts are illegal by virtue of their breaching of the procurement act 2003 and the constitution of Guyana. However, even if they were legal, there are public policy issues.
The widening of this practice which puts at a disadvantage those local companies that have been sustaining the Guyanese economy through the taxes they have been paying over the decades cannot be in accord with good public policy.
Since money is fungible, so-called windfall profits anywhere can fund anti-competitive practices by multinationals. For example, money which should have been paid to the public treasury in Guyana could fund subsidies in fares to foreign airlines competing to the detriment of local or regional airlines. We note that the Competition and Fair Trading Act (CFTA) (Cap 90:07) sets forth its purpose as “to promote, maintain and encourage competition and to prohibit the prevention, restriction or distortion of competition and the abuse of dominant positions in trade; to promote the welfare and interests of consumers…”
We wish to draw the attention of Guyanese tax-paying companies to the fact that, at least in spirit, what is becoming a culture of granting of tax-free status to foreign companies operating in Guyana appears offensive to the CFTA and to public policy. We wish to advise them that TIGI stands ready to represent what they might not consider to be politically correct to do on their own.
