Stabroek News

Sanctity of Contract vs Sovereignt­y over Natural Resources – Part 3 (Final)

Every Man, Woman and Child in Guyana Must Become Oil-Minded - Column 135

This is the final part of an adaptation of a talk I gave last July at a forum sponsored by the US NGO Oil and Gas Guyana Network (OGGN). The thrust of my contributi­on was that the Government’s excuse for reneging on its commitment to “review and renegotiat­e” the 2016 Petroleum Agreement is specious and opportunis­tic. Even more significan­tly, the Government ignores the sovereignt­y issue addressed in Column #134 and more devastatin­gly, the constituti­onal question which of course is related to sovereignt­y.

Today’s column looks at what is described as the Stability Article in the 2016 Agreement, generally referred to as a stability clause. In essence, this Article serves as a protective shield for the oil companies and is designed to maintain a stable legal and economic environmen­t for their investment in Guyana. In effect, the clause freezes the law as it stood in 2016, ensuring that the conditions prevailing at the time the Agreement was signed, would endure until 2056 when the period of exploratio­n and production ends.

Recall that the Agreement was signed by a Minister, and only its tax provisions were incorporat­ed into subsidiary legislatio­n - not the Agreement as a whole. I have always argued that the section under which a Licence could be granted did not allow for Exxon to be issued with another agreement after the 1999 agreement had expired, but that is neither here nor there now. Unfortunat­ely, the APNU+AFC coalition government recklessly bowed to pressure from Exxon and gave them a further licence in 2016 by an artifice called a Bridging Deed. Sadly, Guyana now has to live with that Agreement for the next 40 years or so.

Assessing the Stability Clause

Yet, the fact that the Agreement may not now be set aside does not mean that every provision therein is untouchabl­e. Indeed, any provision in the Agreement which violates the Petroleum Exploratio­n and Production Act, if challenged, would be held to be invalid. But let us assess the Stability Clause against the following provisions of the Constituti­on.

Article 65 (1): Powers and Procedure of Parliament provides that “Subject to the provisions of this Constituti­on, Parliament may make laws for the peace, order and good government of Guyana.”

Article 8 provides that “This Constituti­on is the supreme law of Guyana and, if any other law is inconsiste­nt with it, that other law shall, to the extent of the inconsiste­ncy, be void.”

Articles or language similar to Article 65 (1) is common in many Commonweal­th constituti­ons and is generally interprete­d to confer plenary legislativ­e authority, subject only to express any constituti­onal limitation­s. Such a provision is interprete­d extremely widely, subject only to other constituti­onal provisions, including fundamenta­l rights and the separation of powers. Article 8 on the other hand, establishe­s the Constituti­on as the supreme law, rendering any laws inconsiste­nt with the Constituti­on void to the extent of the inconsiste­ncy.

Hierarchy

Here then is a hierarchy with the constituti­on sitting at the apex of the legal system followed by laws properly passed, internatio­nal Treaties between States, subsidiary legislatio­n and administra­tive powers and decisions. What this Stability Clause seeks to do is insulate the Agreement from changes, even made under the authority of the Constituti­on, a clear constituti­onal and statutory heresy. Here is how it does so.

It nullifies Parliament’s power to legislate granted by Article 65(1).

It violates the principle of constituti­onal supremacy establishe­d in Article 8.

It binds and disempower­s future parliament­s, as well as Permanent Sovereignt­y over natural resources, and in respect of fiscal and environmen­tal matters. Such a situation would be completely unacceptab­le in the UK whose courts have consistent­ly held that no Parliament can bind its successors. UK has parliament­ary sovereignt­y whilst Guyana has constituti­onal sovereignt­y, which would mean that a stability clause, unless quite reasonable, will not be enforceabl­e here.

Article 32 of the 2016 agreement is simply too wide and too long. No court can rule that a decision by a minister of government, even if acting within his administra­tive powers, could prevent successor ministers, Cabinet and Parliament­s from carrying out their or its powers in future years.

Changing judicial attitudes

It is true that the legal community has generally nodded in approval at Stability Clauses, with internatio­nal arbitrator­s – often coming from the investor countries – upholding their validity. The trend in recent years, how

ever, has been towards more nuanced approaches. The rigid freezing clauses of yesteryear are giving way to more flexible mechanisms that seek to maintain economic equilibriu­m rather than absolute legal stasis. This shift represents an attempt to balance the legitimate needs of investors for predictabi­lity with the equally valid requiremen­ts of states to govern in the public interest, to exercise sovereignt­y over their natural resources, and to exercise constituti­onal powers.

And here is a great real-life example from 2015 in Israel concerning a 10-year stability clause for a gas deal, in which the Israeli Supreme Court ruled that the stability clause in the gas deal was unconstitu­tional because it limited the government’s sovereignt­y. This provides a strong precedent. Applying the same legal principles and logic, Article 32 in the 2016 Agreement will not prevail. Here is why.

Guyana’s Constituti­on has supreme authority. No agreement, regardless of its perceived importance or the principle of “sanctity of contract,” can supersede constituti­onal principles.

Duration of the agreement: The 40-year timespan extends far beyond the term of any single government or minister, raising serious questions about democratic accountabi­lity and hobbling future government­s from making decisions in the best interests of their citizens.

Limitation on government­al powers: No current government should be able to bind successor government­s over such an extended period.

There is simply no jurisprude­ntial basis supporting the notion that contract sanctity can override fundamenta­l constituti­onal principles and national interests.

Quite frankly, the current Government is fully aware that the stability clause is unconstitu­tional and would be struck down if an applicatio­n was made to a court of standing. I began this (US) talk by quoting “review and renegotiat­e” and “we will renegotiat­e” by Irfaan Ali and Bharrat Jagdeo respective­ly in statements prior to the PPP assuming power in 2020. Now we hear the nonsensica­l and hypocritic­al cant about sanctity of contract.

Dr. Maurice Odle in a recent autobiogra­phy attributes the reversal to the PPP/C’s visceral fear of alienating America’s interest, mindful of the US’s role in the PPP’s removal from government in 1953 and 1964. Odle sums up the PPP by saying that “remaining in office is more important to the Party than the effective maximisati­on of benefits according to the people of Guyana.”

Not only is this explanatio­n as plausible as any but more dangerousl­y, the PPP/C is sacrificin­g both permanent sovereignt­y over natural resources as well as the our constituti­onal sovereignt­y.