Reko Diq: the other side
4 February 2013
By Rana Sajjad Ahmad
Earlier last month, a three-member bench of the Supreme Court headed by Chief Justice Iftikhar Chaudhry declared null and void the Reko Diq gold and copper mine agreement, the Chagai Hills Exploration Joint Venture Agreement (CHEJVA), with Tethyan Copper Company (TCC).
In view of the sheer value of the stakes involved (estimated to be in the billions of dollars), is it time to rejoice over yet another judgment of the Supreme Court that is ostensibly aimed at protecting our country’s natural resources from “exploitation” by a foreign entity?
More importantly, in view of the ongoing arbitration proceedings before the International Chamber of Commerce (ICC) and the International Centre for Settlement of Investment Disputes (ICSID), what effect, if any, would this Supreme Court judgment have? Could this agreement be considered illegal conclusively and definitively on the basis of the Supreme Court judgment alone?
To the consternation of many Pakistanis, this Supreme Court judgment would neither affect the ongoing arbitration proceedings before the ICC and the ICSID nor have a substantial effect on the rights of TCC to obtain a mining lease.
This is not because these institutions do not recognise Pakistan’s apex court nor because of any questions about the Supreme Court assuming jurisdiction of a matter that is not within its jurisdiction. It is primarily because the legality or validity of the CHEJVA is not at issue before these arbitral tribunals.
In the case of ICSID proceedings in particular, they are being conducted pursuant to Article 13(3)(a) of the bilateral investment treaty between Pakistan and Australia. Pakistan was left with no choice but to submit the dispute for arbitration which Pakistan did by agreeing to arbitrate, through written consent, within 30 days after receiving the request for arbitration.
Therefore, the ICSID arbitration was neither initiated on the basis of some arbitration clause in the CHEJVA nor has it any connection with the fundamental issue decided by the Supreme Court, that is, the legality of the CHEJVA.
The ICSID tribunal is primarily dealing with TCC’s allegation that Pakistan breached its contractual obligations under the bilateral investment treaty between Pakistan and Australia and general international law.
This was made abundantly clear in ICSID’s order of December 2012 in connection with a stay sought by TCC against mining activities in a specific area on the grounds that such activities would cause irreparable harm to the work that was already done in TCC’s deposit areas.
The ICSID tribunal rejected this request and allowed the Balochistan government to proceed with its mining activities in a particular deposit area subject to certain conditions.
Although the government officials and lawyers trumpeted this decision as a huge victory for Pakistan, it is important to understand that the tribunal still has to decide the principal issue of whether or not there was a contractual breach on the part of Pakistan and in case of a breach, whether damages or specific performance should be ordered.
In terms of remedies, the ICSID convention gives the tribunal power to order pecuniary or non-pecuniary remedies including restitution, that is, restoring the situation that existed before the breach or wrongful act was committed.
Pakistan has argued that TCC has no basis for claiming specific performance of the agreement and could only claim damages. TCC, on the other hand, has argued that specific performance, if materially possible, should be preferred over other remedies including damages.
In case the ICSID tribunal renders an award in favour of TCC, at a minimum, Pakistan would have to pay a significant amount of money in damages. More importantly, if the tribunal orders specific performance, it would essentially mean that Pakistan would have to perform all those obligations that it was contractually obliged to do in the first place, that is, before the arbitration proceedings were initiated. In an op-ed on the Reko Diq matter published last year, I had discussed the Supreme Court’s direction to the Balochistan government to request the ICC and ICSID to take no further action in the arbitration proceedings while the issue of validity of the agreement was pending before the Supreme Court. I had raised the issue of whether the Supreme Court order was in line with international law.
Almost one year on, the agreement has been declared illegal by the Supreme Court but the question remains whether the Supreme Court’s order was in line with not just the relevant international law but also with Pakistan’s contractual obligations to foreign investors under a bilateral investment treaty.
Worse still, if the arbitral tribunal orders specific performance of the agreement, the Supreme Court’s declaration of the CHEJVA as a void agreement would essentially be of no relevance or consequence.
The writer is a partner at the Lahore-based law firm of Rana Ijaz & Partners. He is a graduate of Columbia Law School and a member of the New York Bar.