Canadian Sanctity of Contract case offers hope for Guyana: Part 3

Every Man, Woman and Child in Guyana Must Become Oil-Minded – Column 148 – December 24, 2024

Introduction

The two previous parts set out the parallels between the Canadian Churchill Falls case and Guyana’s 2016 PSA. Both deal with agreements governing natural resources and involve the legal principle of sanctity of contract, which is common to both jurisdictions. But any comparison without contextual references or relevant contrasts is simplistic and insufficient. The 2016 PSA is not merely about private commercial law but constitutes the unprecedented subordination of constitutional authority to such lesser law.

Beyond Commercial Terms – Invalidating the Constitution

The extraordinary scope of the implicit sovereignty surrender sets Guyana’s situation apart from Churchill Falls. Through the stability clause highlighted in Part 2, Guyana has effectively suspended its Parliament’s constitutional authority until 2057, barring any further force majeure extension or another bridging deed. I can find no precedent in the history of resource contracts globally for such nullification of a country’s sovereignty. This usurpation goes far beyond Churchill Falls’ commercial imbalances and into the realm of constitutional law.

The Constitution of Guyana vests Parliament with the authority and duty to legislate for the country’s peace, order and good government. Any agreement preventing Parliament from exercising this fundamental power for four decades raises questions about its constitutional validity. I repeat: the stability clause essentially places ExxonMobil beyond the reach of Guyana’s democratic institutions until 2057.

Churchill Judgment Supports Guyana

The Canadian Supreme Court’s emphasis on the equality of the contracting parties in Churchill Falls strengthens Guyana’s position. The Court specifically noted that “both parties to the contract were experienced, and they negotiated its clauses at length.” Contrast this with the 2016 PSA’s negotiation: two technical officers from the Guyana Geology and Mines Commission facing ExxonMobil’s battalion of experts at the company’s headquarters. This stark imbalance is documented in GGMC’s Commissioner’s widely available report following their return.

Churchill Falls became contentious because fixed electricity prices grew increasingly unfavourable to Newfoundland and Labrador over decades. While perhaps not optimal, the initial agreement was considered fair by both parties. Guyana’s situation is fundamentally different. The PSA’s terms were problematic from inception:

  • A 2% royalty rate among the world’s lowest
  • Up to 75% cost recovery before profit sharing
  • Government payment of Exxon’s taxes
  • Absence of standard ring-fencing provisions
  • The bridging deed’s circumvention of statutory relinquishment requirements
  • Most egregiously, the subordination of parliamentary authority to corporate interests

Article 31.2 – Guyana’s Stronger Hand

Perhaps the most significant distinction lies in the agreements’ provisions for modification. Churchill Falls contained no mechanism for adjustment. In contrast, Article 31.2 of Guyana’s PSA explicitly anticipates and provides for renegotiation. This crucial difference means Guyana need not rely solely on broader principles of contract law, equity or even constitutional law – the right to seek modifications is built into the agreement itself. This makes the excuse of the sanctity of contract a farcical and nonsensical red herring.

Constitutional Dimensions

While Churchill Falls raised questions of commercial fairness, Guyana’s PSA presents fundamental constitutional issues that go to the heart of the country’s democratic framework. The stability clause is not about sanctity – it suspends Parliament’s legislative authority over a strategic national resource for four decades. This extraordinary provision raises fundamental questions about whether any minister possesses the authority to fetter Parliament’s constitutional obligations to this degree.

Here is what makes it so farcical. The President appoints a minister giving him the portfolio over natural resources. The Minister then signs an agreement with a private party that suspends the authority of the National Assembly and that of the President who appointed him, and all the presidents and National Assemblies for the next forty years!

The Constitution’s grant of authority to Parliament to legislate for peace, order and good government is not a mere technical provision – it represents the foundational principle of democratic sovereignty. By attempting to place ExxonMobil beyond parliamentary reach until 2057, the stability clause creates a form of corporate sovereignty unprecedented in resource contracts. Even more extraordinary is the extension of this constraint to the Executive President, effectively creating a state within a state, immune from the normal operations of democratic governance.

The Scale of Control

Churchill Falls involved a single significant hydroelectric project. The 2016 PSA governs an area exceeding 6.6 million acres—more than 12% of Guyana’s territory – with multiple discoveries and prospects. This vast scale of resource control granted to ExxonMobil, combined with the constitutional implications, creates a situation unique in the annals of resource agreements.

The implications of this scale are profound. Through the bridging deed, ExxonMobil has secured control over an area larger than many countries, with the right to exploit any discoveries made over this vast expanse. The absence of ring-fencing provisions means each new discovery can be used to extend the period during which Guyana receives minimal returns from existing production. This creates a perpetual cycle of deferred benefits that could extend well beyond the formal agreement period.

Conclusion

The Churchill Falls judgment, far from being an obstacle to Guyana’s aspirations for a fairer deal, strengthens our case for renegotiation in several crucial ways. The court’s emphasis on equal bargaining power and extensive negotiations highlights precisely what was missing in the PSA’s formation. When combined with Article 31.2’s explicit provision for renegotiation and the serious constitutional questions raised by the stability clause, Guyana stands on firmer ground than Newfoundland ever did.

Moreover, while Churchill Falls became unfair through changing circumstances, Guyana’s PSA contained fundamental flaws from inception that strike at the heart of constitutional governance and democratic sovereignty. The scale of control ceded to ExxonMobil, both in terms of territory and governance, goes far beyond anything contemplated in Churchill Falls or, indeed, in most resource contracts globally.

The question is not whether Guyana has the legal basis to seek renegotiation – it incontrovertibly does – but whether there is the political will to pursue it.

Chris Ram

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