Session 2: Joint Development of Hydrocarbon Resources in the South China Sea: International Legal Framework Dominic Roughton Partner, Global Head of Public International Law, Herbert Smith 16 June 2011 Maritime delimitation: Drawing the line: theory and practice Current practice: Serpents Isle case (ICJ, 2009) 1. Start with provisional – Equidistant line (adjacent coasts) – Median line (opposite coasts) 2. Modify it “to achieve a [more] equitable solution” by taking into account special/relevant circumstances – Concave/convex coasts (North Sea CS Cases) – Islands (Tunisia/Libya) – Fisheries? (Jan Mayen; Barbados v. Trinidad) NOTE: “oil concessions and oil wells are not in themselves to be considered as relevant circumstances justifying the adjustment or shifting of the provisional delimitation line” – Cameroon v. Nigeria (ICJ, 2002) 3. Apply test of proportionality 1560690 2 Maritime delimitation: Effect of oil and gas reserves The issues • Presence of hydrocarbons can often lead to overlapping claims between States over maritime areas • Negotiating and entering into a permanent maritime delimitation agreement can be a very lengthy process • IOCs and oil rich countries will not want to wait so long before being able to exploit natural resources • May a State maximise its hydrocarbon exploration and production activities notwithstanding overlapping claims? 1560690 3 The rule of capture and international law: Traditional view • Under international law there is no express provision that calls for the rule of capture to prevail over that of co-operation in the context of a common deposit • Suggestion amongst leading writers and international practice that the rule of capture has no place in international law – Aegean Sea Continental Shelf (Provisional Measures) (ICJ, 1975) – Conduct of Tunisia and Libya • So, exploitation only by common consent? – But risk of sterilising resources 1560690 4 The rule of capture and international law: UNCLOS Obligations Obligation of Mutual Restraint re EEZ and Continental Shelf • Article 74(3)/83(3) of UNCLOS: “Pending agreement as provided for in paragraph 1, the States concerned, in a spirit of understanding and co-operation, shall make every effort to enter into provisional arrangements of a practical nature and, during this transitional period, not to jeopardize or hamper the reaching of the final agreement. Such arrangements shall be without prejudice to the final delimitation”. • “Not very meaningful” (RR. Churchill and V. Lowe) 1560690 5 The rule of capture and international law: UNCLOS Obligations interpreted “Twin obligations” of co-operation and mutual restraint • Considered in Guyana v. Suriname • “Twin obligations simultaneously attempt to promote and limit activities in a disputed maritime area” • States are required to make “every effort” – To enter into “practical provisional arrangements” prior to concluding final delimitation agreements i.e. a JDZ – Not to “jeopardize or hamper the reaching of the final agreement” on their delimitation disputes 1560690 6 The rule of capture and international law: Renewed significance of UNCLOS Arts 74, 83 Obligation 1: Enter into “practical provisional arrangements” • Gathering trend towards encouraging JDZs – North Sea Continental Shelf (ICJ) – Eritrea/Yemen (PCA) • Implicit acknowledgement of “the importance of avoiding suspension of economic development in a disputed maritime area” – Must not affect second of two obligations under Art 74/83 to reach a “final agreement” – But supports argument against sterilisation of natural resources • Duty to negotiate in good faith – Language suggests “drafters’ intent to require of the parties a conciliatory approach to negotiations” 1560690 7 Obligation 1: Enter into “practical provisional arrangements” The solution? • Optimise the potential economic benefits of the area for both States – “Two brothers drinking from the same well” (MTJA) • Set aside claims and enter into:– A Joint Development Agreement (“JDA”) to create a Joint Development Zone (“JDZ”); or – A preliminary boundary followed by unitisation of the transboundary reservoir • Expressly approved by Tribunal in Guyana v. Suriname – following North Sea CS Cases and Eritrea/Yemen 1560690 8 Obligation 2 “Not to jeopardise or hamper … final agreement” Settlement of disputes “an important aspect” of UNCLOS • Criticism of Suriname for use of gunboat to make threats against drilling rig engaged in exploratory drilling for Guyana – Significant damages claim ($33+ million) – Defence of “law enforcement activities” rejected – Obligation to resort to UNCLOS, Art 290 • Overriding obligation upon States to use “peaceful means” to settle disputes: Art 279 et seq • What then are the options for resolving boundary disputes? 1560690 9 Obligation 2: … and how to reach one Negotiations may take years and may not prove fruitful • Parties encouraged to seek provisional/interim measures of protection from ICJ • BUT Aegean Sea CS decision distinguished from a final order • Can Parties go further? 1560690 10 Obligation 2: The tension in Articles 74/83 The “delicate balance” • Parties’ ability to pursue “economic development” must not be “stifled” -BUT• Parties may still do nothing which may have a “permanent physical impact on the marine environment” • So what can the Parties do/not do? 1560690 11 Obligation 2: What is still NOT permissible • No use of or threats of force • No “permanent physical impact to the marine environment” – Unless with joint approval • Drilling? – or at least certain kinds of drilling? 1560690 12 Obligation 2: What is or may be permissible • Seek peaceful resolution as required under UNCLOS – JDA/unitisation – Special agreement – Boundary treaty • Adopt a conciliatory approach – ASEAN Declarations • Co-operate and co-ordinate activities – CNOOC, PNOC and PV Agreements • Unilateral exploratory work (maybe?) – Seismic (Aegean Sea CS) – Core samples? – Others? 1560690 13 Resolution of transboundary disputes: Additional considerations Only States have rights and obligations under customary international law and UNCLOS specifically • Non-States (e.g. oil companies) have no direct rights – under UNCLOS – to appear before the ICJ • Some States have not ratified UNCLOS – Taiwan • Some States have not agreed to be bound by the dispute resolution provisions of UNCLOS – China • NOW WHAT? 1560690 14 Resolution of transboundary disputes: New directions? How can a boundary dispute be resolved? • Twin obligations under UNCLOS Articles 74(3) and 83(3) – Discourage sterilisation of natural resources – Encourage peaceful joint development • Arguably a reflection of customary international law? • If so then: – what is the effect of extended continental shelf claims before the CLCS? – does a failure to negotiate in good faith justify an international right of capture? – can an oil company use a State’s possible breach of international law obligations as leverage to persuade it to agree a resolution? – what is the utility of investment treaties? 1560690 15 Resolution of international boundary disputes: A note for oil companies The lessons of RSM Production v Grenada (ICSID, 2009) * • Do not lose sight of whose boundary dispute this really is:– “… any involvement by RSM in [maritime boundary negotiations], as a private party pursuing its own commercial interests, must be regarded as highly unusual by any ordinary state practice in boundary delimitation negotiations.” (Para 287) • The “secretive, unilateral, unauthorised, crude ‘horse-trading’ approach, backed up with wild threats and vexatious litigation if unsuccessful, contradicted the essential principles of maritime boundary negotiations between states” (Para 327) • The consequences of this involvement:– “Mr Grynberg’s unilateral attempts to negotiate with Venezuela, despite several express communications to the contrary by Grenada, together with his US lawsuit against PDVSA, did not assist in the resolution of maritime boundaries between the two states. Rather, … Mr Grynberg provoked outright hostility.” (Para 308) – His strategy was “highly likely to have had negative implications for maritime boundary negotiations between the two states, if not more serious diplomatic repercussions between friendly countries.” (Para 314) • NOTE: “ICSID Tribunals are not empowered to delimit maritime boundaries.” (Para 333) * Annulment proceedings registered 10 July 2009. An Award in a parallel action was made on 10 December 2010. 1560690 16 Contact details Dominic Roughton Partner Global Head of Public International Law Herbert Smith Midtown Tower 41F 9-7-1 Akasaka Minato-ku Tokyo 107-6241 JAPAN Tel: +81 3 5412 5412 Fax: +81 3 5412 5413 dominic.roughton@herbertsmith.com 1560690 “Dominic Roughton stands out for his experience of international boundary disputes and state to state dispute resolution procedures” Who’s Who Legal, Commercial Litigation 2010 “A firm with a truly international PIL coverage. It has a longstanding strength and commitment to this field” Chambers Global 2010 “Dominic Roughton is a ‘solid lawyer who is forming a great Asian PIL practice.’ He covers state-to-state and investor-state disputes, and has a growing focus on boundary disputes. His practice also includes advisory work for oil companies” Chambers 2009 “Excellent” Who’s Who Legal, 2008/9 “The firm has sewn up the market in Asia in terms of PIL advice, in the shape of Dominic Roughton in Tokyo” Chambers UK 2008 “The firm has a prominence in Asia due to the [PIL] practice of Dominic Roughton in Tokyo” Chambers Global 2008 17