Oil and a slippery path to conflict: ConocoPhillips, Guyana and the hostile elephant in the room

Last Updated on Sunday, 25 August 2024, 13:08 by Writer

By: Dr. Vivian M. Williams, Esq.

ConocoPhillips knew it was in for a rough ride when it gave in to the lure of Venezuela’s oil and an array of concessions. Oil it was that put Venezuela on a slippery path to conflict on the global stage. Before bedazzling ConocoPhillips in the 1990s, the South American provocateur nationalized the oil concessions of foreign companies within its territory and demonstrated an exaggerated sense of sovereignty and nationalism.

Almost half a century ago, while it was seizing foreign assets within its territory, Venezuela was readying its troops to threaten the seizure of two-thirds of its neighbor’s territory. Now ConocoPhillips finds itself, exactly where its predecessors were half a century ago. The oil giant, with its registered office in The Hague, Netherlands, is fighting back with a relentless pursuit of justice. It is enlisting the courts of countries where assets of Venezuela’s state-owned oil company Petróleos de Venezuela, S.A. (PDVSA) and its subsidiaries could be found, to collect on an arbitration award it has won. So, as it was in the beginning, oil continues to lubricate the bearings of conflict between Venezuela and global corporate giants, and Venezuela and its South American neighbor, Guyana. For more context, see The brink of war: how courts avoid injudicious aggravation of tension between nations.

By a stroke of coincidence or the blight of oil, ConocoPhillips obtained its arbitration award against PDVSA in the height of Guyana’s discovery of oil in abundance. The coincidence means that Venezuela was recalibrating its war posturing against Guyana at the same time ConocoPhillips was sizing up Venezuela’s assets in Guyana. Therefore, the current proceeding to enforce ConocoPhillips’ arbitral award against PDVSA’s assets in Guyana, is taking place with a hostile elephant in the room. The case is ConocoPhillips Gulf of Paria B.V. v Corporation Venezolana Del Petroleo, S.A. and Petroleos De Venezuela, S.A. (PDVSA).

Whether Guyana should enforce the arbitral award against Venezuela’s state entities at a time when relations between the countries are rife with conflict, requires more than a cursory glance. Perfunctory claims that domestic laws clearly answer this question, are simplistic. In fact, the ConocoPhillips case requires consideration of a mix of public international law, domestic law and common law doctrines. While international and domestic laws provide for reciprocity, it is up to a state to enforce or decline enforcement of a foreign arbitral award. The national interest is the paramount and overriding consideration.

However, the Judge who presided over ConocoPhillips’ enforcement case in Guyana bristled at the exhortation by the country’s Attorney General that the court’s patriotic standing could be impugned if the national interest articulated by the Executive was ignored. The ConocoPhillips drama has therefore opened a rift between the Executive and the Judiciary in Guyana, that may require an appellate court to delineate the boundaries of the two branches of government. This rift urges consideration of the following pertinent questions:

1. What constitutes public policy under the Arbitration Act for the purpose of enforcement of a foreign arbitration award?
2. Which branch of government is constitutionally assigned the function of determining and prioritizing public policy?
3. To what extent property of a state enjoys immunity from the enforcement jurisdiction of the courts of another state? and
4. What are appropriate means to serve initiating legal process against another state?

This article addresses questions 3 and 4. Consideration of questions 1 and 2 while touched on in a previous article, may be dealt with more fully in a subsequent article.

State immunity and a dicey entanglement

Overlooked by commentators and Justice Gino Persaud, who is handling the ConocoPhillips case in Guyana, is the jurisdictional effect of state immunity, “a general rule of customary international law solidly rooted in the current practice of States” [i]. The International Court of Justice (ICJ) has affirmed that state immunity is part of binding international law [ii]. The current acting President of the Caribbean Court of Justice (CCJ), Justice Winston Anderson, notes that the English Court of Appeal recognizes state immunity as requiring every state to decline to exercise jurisdiction over any sovereign or its property located within its territory [iii]. More than forty years ago, the application of this binding public international law rule in Guyana, was recognized and extensively discussed in the case of Teemal v Guyana Sugar Corporation Ltd [iv]. Its relevance reemerged in the ConocoPhillips case without detection.

It is relevant in this case because the property ConocoPhillips is trying to get its hands on is property of the State of Venezuela. Has ConocoPhillips enlisted the court in Guyana to seize property of another state that is immune from legal process under public international law? That is the essence of what the court in Guyana must grapple with as a member of the community of nations.

The exemption from state immunity ConocoPhillips’ arbitration claim against PDVSA enjoys should not be confused with enforcement proceeding in Guyana. Adjudicative jurisdiction of the arbitration claim is exempted from immunity because PDVSA agreed to subject itself to arbitration. A contractual agreement to arbitrate a claim that is otherwise protected by state immunity, operates as a waiver of that immunity. This is essentially the reason the arbitration tribunal cited for exercising adjudicative jurisdiction.

However, the contractual waiver PDVSA granted to ConocoPhillips does not extend to the separate and distinct relationship it has with Guyana. The court in Guyana is being asked to exercise enforcement jurisdiction, not adjudicative jurisdiction. As the UK Supreme Court has noted, in enforcement proceedings a court in the forum state is enlisted to seize the assets of another state [v].

Justice Anderson makes the same observation about state immunity in the Caribbean. He cautioned that the regime of adjustive jurisdiction is separate and distinct from enforcement [vi]. He therefore states that a waiver of immunity from adjudicative jurisdiction does not necessarily imply that a judgment arising from that jurisdiction is enforceable against the property of a foreign State. Therefore, a legitimately obtained foreign arbitration award does not automatically pierce the veil of immunity Guyana must accord property of the State of Venezuela. This is a major issue that has eluded consideration in the ConocoPhillips case in Guyana.

Guyana’s Attorney General, Anil Nandlall specifically notes that the property that is subject to enforcement proceeding is “debt owed by the Government of Guyana to the Government of Venezuela”. There is no consent by Venezuela to exempt its property from the insulation of public international law that forecloses local courts from exercising jurisdiction. The Attorney General therefore prudently recognizes that the enforcement proceeding in Guyana is in the posture of a proceeding against a state and raised the issue of jurisdiction. His enlightened submission is founded in the United Nations definition of State in the context of litigation. The UN deems proceedings to be instituted against a State if a State is:

“…not named as a party to the proceeding but the proceeding in effect seeks to affect the property, rights, interests, or activities of that other State [vii].”

Further, the UN defines a State as including “agencies or instrumentalities of the State or other entities, to the extent they are entitled to perform and are actually performing acts in the exercise of sovereign authority of the State” [viii]. The fact that PDVSA is a Venezuela State-owned company that served as the facilitator of the Petrocaribe contract Guyana signed with Venezuela, seems to escape consideration in the case.

When Alcom Ltd. sought to enforce a legitimately obtained judgment against property of the Republic of Colombia, the House of Lords, per Lord Diplock, pointed out that the English courts could not exercise enforcement jurisdiction against property of Colombia [ix]. Similarly, the U.S. Supreme Court determined that a District Court lacked jurisdiction to exercise enforcement jurisdiction against a vessel belonging to the State of Peru. It noted that “…the judicial seizure of the vessel of a friendly foreign state is so serious a challenge to its dignity, and may so affect our friendly relations with it, that courts are required to accept and follow the Executive’s determination that the vessel is immune” [x].

The U.S. Supreme Court therefore poignantly stated that:

“This practice is founded upon the policy, recognized both by the Department of State and the courts, that our national interest will be better served in such cases if the wrongs to suitors, involving our relations with a friendly foreign power, are righted through diplomatic negotiations rather than by the compulsions of judicial proceedings.”

The House of Lords in the UK, the US Supreme Court, the ICJ, and the UN have made it pellucid, that public international law strips domestic courts of jurisdiction to seize property of another State. The current President (ag.) of the CCJ, Justice Winston Anderson, has formed the same conclusion.

How and when courts should exercise jurisdiction over a foreign state

The court’s failure to recognize the essence of the application before it, leads us to another major issue. How proceedings should be initiated against a State? The UK Supreme Court notes “The service of process on a State in itself involves an exercise of sovereignty and gives rise to particular sensibilities.” [xi].

Recognition of the likelihood of conflict between nations from inappropriate service of legal proceedings and documents upon States, has led to the evolving convention of transmitting legal documents through diplomatic channels to the Ministry of Foreign Affairs of the State concerned. Alternatively, service of process may be accomplished by any other means accepted by the State concerned [xii]. These measures are codified in the UN Convention on Jurisdictional Immunities of States and Their Property (UNCSI). In 2020 the UK Supreme Court determined that considerations of international law and comity makes these procedures for service mandatory in all cases in the UK where documents instituting proceedings are to be served on a foreign state [xiii] notwithstanding that their binding status via the UNCSI is pending.

Guyana has not established special procedures for service of process on another State as almost every prominent State in the international community has. The country’s Civil Procedure Law leaves a vacuum when it comes to initiating proceedings against a State. It provides for how civil service of process should be made against a “person” who is out of the jurisdiction. In such circumstance, court permission is required, and the proposed method must be “appropriate.

Use of diplomatic channels in litigation involving states

Unlike other states that are major players in the international system, Guyana does not have a Sovereign Immunity Act which is the companion legislation that codifies and absorbs international law and customs on proceedings against States, into domestic law. The Civil Procedure Law is not geared toward the sensibilities of proceedings against another State. This legislative deficiency exists across the Caribbean except for Belize. Therefore, the court should have looked to International Conventions to determine an appropriate method to initiate proceedings against Venezuela.

The UNCSI, the European Convention on State Immunity (ECSI), and the State Immunity Acts of countless states, lay out the customs and expectations of states when proceedings are initiated against them. They provide for serving legal proceedings upon a state through diplomatic channels. This practice which states have started to claim is mandatory, evolved to avoid tension between states. It also serves to manage any angst that may arise when the court of one state decides to exercise jurisdiction over another. The Australian Law Reform Commission notes: “It is guaranteed to bring the suit to the attention of senior officials of the foreign state, fulfilling the criterion that service must give the state adequate notice. Equally importantly the diplomatic channel is least likely to cause offence to recipients” [xiv].

Consideration of an appropriate method to initiate proceedings against Venezuela, therefore should have led to use of diplomatic channels. Instead, Justice Persaud directed that a law firm in Venezuela be responsible for service upon the corporate officers of PDVSA in Venezuela. No service was directed through the diplomatic channels or, at minimum, the diplomatic mission.

In contrast, Justice Frank Seepersad who presided over ConocoPhillips’ enforcement proceeding in Trinidad and Tobago for the same arbitral award, included service on Venezuela’s diplomatic mission in Trinidad, among a range of other methods. Justice Seepersad’s recognition that a state’s interest is at play, is indicative of how some courts are attuned to the obligations of international law. The Trinidad and Tobago court took the extra step despite that country’s refusal to sign the Petrocaribe agreement with Venezuela as Guyana and other Caricom states did.

In stark contrast to Trinidad and Tobago, the IDB noted that “The scheme had provided stimulus to the Guyanese rice sector, resulting in higher levels of investments in improved inputs and machinery, an expansion in area cultivated, higher levels of outputs, higher levels of exports, and increased employment”. In 2014, Guyana’s President at the time, Donald Ramotar called PetroCaribe an agreement of foresight and of special importance to the Caribbean region [xv]. How then the court in Guyana fails to recognize that the enforcement proceeding before it, in effect seeks to affect the property, rights, interests, or activities of another State?

The ConocoPhillips enforcement proceeding in Guyana is a case where service through diplomatic channels was most appropriate because of tension between the two countries and the intensity of diplomatic effort to contain the conflict. The court should have particularly ordered service of its July 2024 Order that recognizes and enforces the arbitral award in Guyana, through diplomatic channels. In fact, after the Argyle Declaration which was brought to its attention by Solicitor General Nigel Hawke and AG Nandlall, it would have been prudent for the court to direct service through the diplomatic channels before issuing its enforcement order.

The Joint Declaration of Argyle for Dialogue and Peace between Guyana and Venezuela was entered into on December 14, 2023. Through it, Venezuela and Guyana agreed to continue dialogue on pending matters of mutual importance to them. They also committed to refrain from escalating any conflict or disagreement arising from any controversy between them and to cooperate to avoid incidents that could provoke tension. Moreover, the Declaration of Argyle established a joint commission of the Foreign Ministers from the two states.

Therefore, the framework and the commitment existed for service of process through diplomatic channels in accordance with an appropriate method recognized by the UN and subscribed to by members of the community of nations. Interestingly, the Declaration of Argyle was made part of the AG’s submissions to the court.

Enlightening and well-founded submissions

Venezuela is undoubtedly the hostile elephant in the room whose presence and its implications, Justice Persaud overlooked. In the circumstance, AG Nandlall’s submission on the jurisdictional defect in the case, is enlightening and commendable. Guyana’s rapidly expanding economy and deeper integration in the global economy, means that its courts cannot exist and act in a local bubble. The ConocoPhillips matter is the beginning of sensitive cross-border and international law matters local courts must ready themselves to prudently address. If not, an abundance of oil will see the country slipping into a web of international conflict. On this score, the words of Justice Winston Anderson, uttered few years ago, is an appropriate curtain call:

“…the rules under which Caribbean courts grant foreign sovereign immunity remain largely the arcane rules of the common law unvisited and unrevised by parliament despite the obvious interest of the executive in policymaking in inter-state relations, and despite quietly sophisticated judicial calls for legislative reform. It is to be hoped that with this publication that call is no longer quiet [xvi].”

*The author expresses thanks to Trinidadian Justice Frank Seepersad whose Chambers responded promptly and provided the documents in that case. The author also expresses thanks to the Attorney General of Guyana who made the documents in the case in Guyana available. The author also reached out to the lawyer for ConocoPhillips in Guyana, Mr. Nigel Hughes without success. The article was kept on hold for a week during that time.

[i] Yearbook of the International Law Commission, 1980, Vol. II (2), p. 147, para. 26).

[ii] Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening), Judgment, I.C.J. Reports 2012, p. 99.

[iii] The Honorable Mr. Justice Winston Anderson, Foreign Sovereign Immunity in the Caribbean: A Case for Legislative Intervention, 53 Geo J Int’l L 57, 100 [2021].

[iv] Teemal v Guyana Sugar Corporation Ltd, GY 1982 HC 14.

[v] General Dynamics United Kingdom Ltd v State of Libya, [2021] 4 All ER 555.

[vi] Honorable Mr. Justice Winston Anderson at note iii.

[vii] Art. 22 of the UN Convention on Jurisdictional Immunities of States and Their Property (UNCSI).

[viii] Id.

[ix] Alcom Ltd v Republic of Colombia (Barclays Bank plc and another, garnishees), [1984] 2 All ER 6.

[x] Ex parte Republic of Peru, 318 U.S. 578, 588.

[xi] General Dynamics United Kingdom Ltd v State of Libya, [2021] 4 All ER 555.

[xii] Art. 22 of the UN Convention on Jurisdictional Immunities of States and Their Property (UNCSI), See also Art. 16 of the European Convention on State Immunity (ECSI).

[xiii] Note v.

[xiv] Australian Law Reform Commission, Report No. 24 (1984).

[xv] See Dr. Oden Ishmael, Guyana Remains Firmly with Petrocaribe.

[xvi] The Honorable Mr. Justice Winston Anderson, Foreign Sovereign Immunity in the Caribbean: A Case for Legislative Intervention, 53 Geo J Int’l L 57, 100 [2021].