ICC upholds Pakistan’s jurisdiction in oil dispute

Court rules Frontier Holdings Limited must bear arbitration costs, set at $250,000

April 07, 2024

The International Chamber of Commerce (ICC) has affirmed Pakistan’s jurisdiction in a legal dispute within the oil and gas exploration sector. Frontier Holdings Limited (FHL), a subsidiary of Jura Energy Corporation, failed to fulfil its investment commitments in the field, resulting in the forfeiture of its rights. Subsequently, FHL challenged this decision in an international court to reclaim its rights under the petroleum concession agreement.

In a recent decision, the international court upheld Pakistan law as the governing authority in arbitration agreements related to Petroleum Concession Agreements (PCAs) and Joint Operating Agreements (JOAs) in the oil and gas exploration sector. According to a copy of the decision obtained by the Express Tribune, the court majority ruled that Frontier Holdings Limited must bear the arbitration costs, which have been set at $250,000 by the ICC court, with no further order regarding their payment.

Additionally, the Tribunal directed each party to bear their own costs and dismissed all other claims and requests for relief by majority decision. In a legal dispute, the international court also upheld Pakistan’s legal sovereignty over arbitration agreements, ruling against FHL, a significant player in the petroleum industry. This ruling offers clarity for parties engaging in agreements concerning PCAs and JOAs in Pakistan’s oil and gas exploration sector, enhancing confidence in the legal framework governing their transactions.

Furthermore, it highlights Pakistan’s commitment to international legal obligations and its readiness to respect the rulings of international tribunals, enhancing the country’s reputation as an appealing destination for international investments. The ruling, spanning over 80 pages and delivered by a three-member Arbitral Tribunal, represents a significant milestone in Pakistan’s legal framework. It solidifies the country’s legal sovereignty concerning arbitration agreements associated with PCAs and JOAs.

The Tribunal affirmed that Pakistani law governs the arbitration agreement and confirmed the competence of the ICC court to exercise prima facie jurisdiction and proceed with this arbitration under Article 6(3) of the ICC Rules. Likewise, by majority decision, the Tribunal declared that it lacks jurisdiction over this dispute. This legal battle, initiated by Jura’s subsidiaries, which operate as non-operators in the Exploration & Production (E&P) sector, involved defaults on their financial obligations to the Government of Pakistan and key industry players, including Oil and Gas Development Company Limited (OGDCL) and Mari Petroleum.

The situation intensified when Transparency International filed a complaint, leading to direct intervention by the Prime Minister’s office and enforcement action by the Ministry of Energy. This resulted in the recovery of a significant amount of Rs1.3 billion from the subsidiaries’ receivables. Jura’s subsidiaries initiated Arbitration Proceedings at the International Chamber of Commerce (ICC) regarding agreements executed in Pakistan. However, the Tribunal ruled that it lacked jurisdiction over the dispute, thereby confirming Pakistan’s law as the governing authority over arbitration agreements.

This decision reinforces Pakistan’s legal sovereignty and underscores its commitment to fair and transparent dispute resolution mechanisms. This episode serves as a cautionary tale, highlighting the importance of adhering to legal frameworks and strategic foresight in international business dealings. The International Tribunal’s judgment marks a milestone in Pakistan’s legal evolution, reaffirming the country’s legal sovereignty and signalling its dedication to a transparent and robust legal framework that fosters investor confidence and economic growth.