CASTRIES, St. Lucia, Thursday August 28, CMC – The St. Lucia government Monday said it had won the latest round of ongoing arbitration with the US-based oil and gas exploration and production company, RSM Production Corporation.
A statement from the Office of the Prime Minister stated that on August 13 the Arbitral Tribunal ordered RSM to post a guarantee of US$750,000 to ensure that it will pay St. Lucia’s legal costs if it is ordered to do so at the end of the case.
“This is St. Lucia’s second major success, following the Tribunal’s order on December 12, 2013, for RSM to pay all of the advances towards the administrative costs of the arbitration – which in all previous known cases have been paid 50 per cent by each party.
“Both of these orders are the first of their kinds in the history of the International Centre for Settlement of Investment Disputes (ICSID), which is administering the arbitration. The three arbitrators are independent of ICSID but are deciding the case under the ICSID Arbitration Rules, which are designed for disputes between host states and foreign investors. The Government is pleased to have achieved these unique successes,” the statement from the Office of the Prime Minister added.
The Colorado-based RSM Production Corporation, owned by US-based oil magnate, Jack Grynberg, had initiated the arbitration for breach of a multimillion dollar contract.
The company took the action against the St. Lucia government in respect of the exploration license which it was granted several years ago to undertake exploration for oil over a specified area of water offshore of the coast of St Lucia.
The main opposition United Workers Party (UWP) claimed that the government had announced in May in 2012 that Grynberg had filed a US$500 million claim against St. Lucia.
The statement from the Office of the Prime Minister notes that RSM must now post security because of the concern that, if the Tribunal later orders RSM to reimburse St. Lucia, RSM will fail to do so.
“The Tribunal’s order summarizes the parties’ claims and defenses, saying that the case arises from an offshore petroleum exploration contract. The Tribunal noted that, “according to (RSM’s) position, boundary disputes developed, affecting the exploration area, in particular in relation to Martinique, Barbados and St. Vincent, which allegedly prevented (RSM) from initiating exploration”.
RSM also claims that former prime minister Stephenson King signed a three-year extension to the contract but then retrieved the document before it could be delivered to RSM.
RSM claims that the extension is valid, even though RSM never received it. RSM has asked the Tribunal to declare that the exploration contract is still in full force and effect.
In reply, St. Lucia maintains that the agreement “has expired or is at least not enforceable and therefore Saint Lucia has no obligation (to RSM)”.
The St. Lucia government said the latest order does not determine which party is correct on these matters. It relates only to the costs of the proceeding.
“The Tribunal noted that RSM had had a history of non-payment of costs awarded against it. The Tribunal said it was “satisfied that also in this proceeding, there is a material risk that [RSM] would not reimburse [St. Lucia] for its incurred costs, be it due to [RSM’s] unwillingness or its inability to comply with its payment obligations,” the government statement said.
“Moreover, RSM admitted that it had received funding from a third party, and this “supports the Tribunal’s concern that [RSM] will not comply with a costs award rendered against it, since, in the absence of security or guarantees being offered, it is doubtful whether the third party will assume responsibility for honoring such an award.
“Against this background, the Tribunal regards it as unjustified to burden [Saint Lucia] with the risk emanating from the uncertainty as to whether or not the unknown third party will be willing to comply with a potential costs award in (St. Lucia’s) favour.”
The Tribunal noted that its ruling does not mean that “it considers (St. Lucia’s) defence on the merits to be successful”.
“If RSM fails to provide the bank guarantee, St. Lucia can request the Tribunal “to cancel the hearing date” on the merits. The Government may, of course, choose to seek remedies other than postponing the hearing if RSM does not comply,” the statement added.
The hearing on the merits of the case is scheduled for February 2015.