Both Governments misused ‘sanctity of contract’ doctrine to avoid acting in nation’s best interest – NY Lawyer

Oct 02, 2022 News

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“Simply put, sanctity of contract means, an agreement made freely, knowingly, put fairly by competent parties, must be kept” 

By Kiana Wilburg

Kaieteur News – Though the 2016 Stabroek Block Production Sharing Agreement (PSA) has been heavily criticized for having a gross number of fiscal weaknesses, the PPP/C administration has maintained that no renegotiation will take place.

The party’s top officials such as Vice President, Dr. Bharrat Jagdeo have categorically stated that they abide by the sanctity of contract doctrine. This principle states that the companies involved as well as the State will uphold their obligations under the deal.

A New York based lawyer, Dr. Vivian Williams has since challenged this standing by the Government, as he believes there are clear grounds for which that principle can be set aside or overruled.

In an invited comment, Dr. Williams said successive administrations have, for too long, invoked the common law doctrine of sanctity of contract to evade calls for renegotiation of the Stabroek Block PSA.

He said, “What is playing out is the misapplication of a legal doctrine to avoid acting in the nation’s best interest. Because the sanctity of contract doctrine does not apply to the consensual process of contract renegotiation, common sense should have shut down that argument before it was even made.”

The lawyer added, “Simply put, sanctity of contract means, an agreement made freely, knowingly, and fairly by competent parties, must be kept. It operates as a fundamental principle of contract law, reflected in principles such as pacta sunt servanda, well unknown to state actors. Therefore, despite sovereignty, a state is liable if it unilaterally breaches an agreement.”

However, Dr. Williams contended that the renegotiation of a contract is a common practice that does not collide with the sanctity of contract doctrine. He said it involves the revisiting of problematic terms of an agreement by parties who may or may not reach agreement on a revision. Therefore, Dr. Williams argued that sanctity of contract and renegotiation of contract are parallel processes that compliment rather than offend each other.

Furthermore, the lawyer stated that there has been an escalation of grave errors by the current and previous governments when it comes to the 2016 deal. Dr. Williams said this takes the form of escalating a commitment to bad decisions because one is already vested. “…In this case, Guyana’s escalation of error involves vesting itself in the defense of what it acknowledges is a bad deal,” the lawyer stated.

Expounding further, the lawyer outlined how key errors have escalated over the years. The first he said occurred in June 1999 when the government signed a clumsy exploration agreement. That agreement granted a petroleum exploration licence to Esso Exploration and Production Guyana Limited (EEPGL) that violated the country’s Natural Resources Law on the number of blocks that can be awarded to a company. The company was given 600 blocks when only 60 are allowed by law.

When that error came to light after oil was discovered in commercial quantities in 2015, Dr. Williams said the political actors now in power, used justification to defend the error. “The justification offered is that oil was not yet discovered. Of course, if you are engaging in exploration, you have no assurance that the exploration would lead to any discovery. However, predictive analytics and other factors should lead to better bargaining.”

After the 2015 discovery of oil, he noted that the APNU+AFC Government at the time signed a PSA which did not correct the award of the blocks. He recalled that the amended contract was later condemned as lopsided and unfair to the country by the political party now in government and global experts.

The next error he said was that the PPP Government inappropriately invoked the sanctity of contract doctrine in defense of what it has accepted as a lopsided contract. He said it then kicks the can down the road, promising to do better in future contracts.

Taking the foregoing into account, Dr. Williams said a troubling trend has therefore emerged. At each stage of the country’s journey into petroleum production, he said an oil giant upon whom it relies, dupes it into a lopsided agreement. This he said is followed by the aggrieved country defending what it accepts as a bad deal and marches forward.

Dr. Williams said this cycle of error has repeated itself for almost a quarter of a century, spanning several administrations. He said it is a cycle that mirrors the exploitation the country experienced in other natural resource sectors, for all its life.

The Lawyer is of the view that the history of successive failures in negotiations with multinational companies is not a confidence booster to the people the Government is asking to have faith in the future. To the contrary, he said it undermines confidence and creates disquiet.

He has since said it is an economic mistake if the country continues along this line; adding that it tells investors the authorities are willing to roll over and accept unscrupulous conduct.

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