Investor v Host State in Oil and Gas Investment Agreements: A Case for Good Faith, Jurisdiction and Arbitrability for a Stable Investment Environment

Abstract

Certainty and predictability are legal virtues which are considered essential, yet again unattainable in an absolute manner. However, oil and gas contracts are characterised with an investor-State relationship and endure a number of risks, which necessitate the guarantee of legal certainty. Their long duration, immense initial capital invested, irreversibility of national natural resources, and political, economic and commercial influences make petroleum agreements susceptible to instability. Hence, while certainty and predictability are required, a stable investment environment demands that these traditionally common law notions are comprehended in a more unconventional manner. In order to ensure the smooth running of the development project and the continuity of the business relationship, contractual stability needs to be balanced against the need for flexibility, which is a reflection of the vulnerability of oil and gas contracts to changes of events. The achievement of a stable investment environment includes an evaluation of the rights and interests of an international oil company and the objectives and public prerogatives of a sovereign state. Amongst the leading sources of uncertainty nowadays is the risk of indirect expropriation, which can be addressed with the help of contractual clauses and international legal principles found in treaty and contract. The task of ensuring a stable investment environment is further complicated by issues emanating from the role of arbitration and the neutrality of arbitrators. The thesis aims to ensure certainty and predictability in oil and gas contracts by examining the adversary and opposing investor-State relationship. It argues that a stable investment environment is achieved when the rights of both parties are recognised and balanced. In the construction of a stable investment environment come the principles of good faith, jurisdiction and arbitrability, and contractual stability measures.