Niko Resources (Bangladesh) Ltd. v. Bangladesh Oil Gas and Mineral Corporation (Petrobangla), Bangladesh Petroleum Exploration and Production Company Limited (Bapex)

At a glance

Parties

Niko Resources (Bangladesh) Ltd. (subsidiary of Niko Resources Ltd., Canada) v. Bangladesh Petroleum Exploration & Production Company Limited (BAPEX) and Bangladesh Oil Gas and Mineral Corporation (Petrobangla); the People's Republic of Bangladesh was a respondent until the Decision on Jurisdiction

Case no.

ICSID Case No. ARB/10/18 (Payment Claim), conducted together with ICSID Case No. ARB/10/11 (Compensation Declaration)

Forum and rules

ICSID Convention and ICSID Arbitration Rules

Treaty

None. Contract: arbitration clause in the Gas Purchase and Sale Agreement of 27 December 2006 (GPSA); Joint Venture Agreement of 16 October 2003 (JVA)

Tribunal

Michael E. Schneider (President), Campbell McLachlan, Jan Paulsson

Sector

Oil and gas: marginal gas fields (Feni and Chattak)

Outcome

Award of 24 September 2021: Petrobangla must pay Niko for gas delivered from the Feni field, with compound interest and most of the costs. The corruption claim and the Bangladeshi court injunctions did not excuse payment.

Amount

Principal: USD 25,312,747 and BDT 139,988,337. Interest to 20 November 2020: USD 13,195,703 and BDT 116,852,605, then 180-day average SOFR + 2% (USD) and 5% (BDT), compounded annually. Costs: CAD 1,737,592 and USD 102,483 towards Niko's legal costs. Arbitration costs of USD 1,116,627.96: Niko bears USD 134,538.40 and the Respondents USD 982,089.56, so the Respondents must pay Niko USD 423,775.58.

The dispute

Niko and the State company BAPEX formed a joint venture under the 2003 JVA to develop the marginal and previously abandoned Feni and Chattak gas fields in Bangladesh. Niko was the operator. The joint venture sold gas from the Feni field to Petrobangla under the 2006 GPSA. Petrobangla did not pay for gas delivered from November 2004 to April 2010, citing an injunction issued in 2005 by the High Court Division of the Supreme Court of Bangladesh in proceedings brought by the Bangladesh Environmental Lawyers Association (BELA) after two blowouts at Chattak in 2005. Niko brought the Payment Claim under the GPSA (ARB/10/18) and a request for a declaration that it was not liable for the blowouts (ARB/10/11). The Respondents objected to jurisdiction, pleaded force majeure, relied on later Bangladeshi court injunctions, and in 2016 sought to avoid the JVA and the GPSA on the ground that they were procured by corruption.

Key holdings

1. The Tribunal has jurisdiction over Niko's claim against Petrobangla for payment under the GPSA, and over the JVA claims against BAPEX. It has no jurisdiction over the State of Bangladesh, which ceased to be a respondent. The corruption objection based on Niko Canada's Canadian conviction did not defeat jurisdiction. Decision on Jurisdiction, ¶ 575
2. Petrobangla owes Niko USD 25,312,747 plus BDT 139,988,337 for gas delivered from November 2004 to April 2010. The court injunction against payment was a risk Petrobangla assumed and did not act adequately against, so its force majeure defence fails. Simple interest runs at six-month LIBOR + 2% (USD) and 5% (BDT). First Decision on the Payment Claim, ¶¶ 276, 292
3. Compound interest is the commercial norm and needs no specific proof. Because Niko did not justify monthly compounding, interest is compounded annually. Petrobangla was ordered to pay the principal and pre-decision interest of USD 5,932,833 and BDT 49,849,961 into an escrow account. Second Decision on the Payment Claim, ¶¶ 147–164, 167
4. The Respondents frustrated the escrow arrangement, so the Tribunals ordered immediate and unrestricted payment to Niko. The Tribunals' jurisdiction is exclusive, and the 2016 injunction of the Bangladeshi court has no effect on the payment obligation. A later decision declared exclusive subject-matter jurisdiction over the validity of the agreements, liability for the blowouts and the payment obligations, and ordered BAPEX and Petrobangla to bring this to the attention of the Bangladeshi courts. Third Decision on the Payment Claim, ¶¶ 107–110; Decision on Exclusivity, ¶ 20
5. The Corruption Claim is unfounded. Neither the JVA nor the GPSA was procured by corruption: the consultants Niko used provided legitimate services, and the Respondents' allegations were unsupported by the evidence. The GPSA price was far below what Petrobangla paid other suppliers. There is no basis for revising the decisions on the Payment Claim. Decision on the Corruption Claim, ¶¶ 2000–2010
6. In the parallel blowout case: the first blowout at Chattak 2 was caused by Niko's breaches of its operator obligations under the JVA, but the second blowout at Chattak 2A was not. Niko must compensate BAPEX for direct loss; the JVA's exclusion of consequential loss binds the Government and Petrobangla as assignors. A later decision held that loss of production is not recoverable and that Niko's set-off claims against BAPEX are time-barred. Decision on Liability, ¶ 1159; Decision on Heads of Recoverable Loss, ¶¶ 773–782
7. The Award confirms all earlier decisions and orders immediate payment of the principal with updated interest; LIBOR is replaced by SOFR. Each side bears its own costs and half the arbitration costs of the jurisdiction phase. The Respondents bear Niko's costs and the arbitration costs of the Payment Claim phase and of their share of the Corruption Claim phase. Costs must be paid within 45 days, after which interest runs. Award, ¶¶ 349–375

Procedural history

1. 1 April 2010Niko files Request for Arbitration I on the Compensation Declaration (ICSID Case No. ARB/10/11).
2. 16 June 2010Niko files Request for Arbitration II on the Payment Claim (ICSID Case No. ARB/10/18).
3. 14 February 2011Joint First Session in Geneva. Procedural Order No. 1 sets the timetable for the jurisdiction phase.
4. 19 August 2013Decision on Jurisdiction: jurisdiction upheld over BAPEX and Petrobangla and declined over Bangladesh.
5. 11 September 2014First Decision on the Payment Claim: Petrobangla owes the invoiced amounts plus interest.
6. 14 September 2015Second Decision (on implementation): payment into escrow, with interest compounded annually.
7. 26 May 2016Third Decision on the Payment Claim orders immediate direct payment. Procedural Order No. 13 gives priority to the Respondents' new Corruption Claim and suspends other issues. On 19 July 2016 the Decision on Exclusivity follows.
8. 25 February 2019Decision on the Corruption Claim, after a hearing in Paris in April 2017: the claim is rejected.
9. 28 February 2020 – 18 May 2021Decision on Liability and Decision on Heads of Recoverable Loss in the blowout proceedings (ARB/10/11).
10. 24 September 2021Proceedings in ARB/10/18 are closed (Procedural Order No. 29) and the Award on the Payment Claim is dispatched. The published documents do not show the outcome of the quantum phase in ARB/10/11.

Tribunal, counsel and experts

Decided by

• Michael E. Schneider President
• Campbell McLachlan Co-arbitrator
• Jan Paulsson Co-arbitrator

For the claimant

Salans FMC SNR Denton Europe LLP / Dentons · Gowling Lafleur Henderson LLP

For the respondent

Juris Counsel · Matrix Chambers · Watson Farley & Williams · Foley Hoag LLP · Alliance Laws · Aequitas Chambers

Experts

Paul R. Carpenter (respondent) · Carl F. Jenkins (respondent) · Christopher P. Moyes (claimant)

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Keywords

• Niko
• Petrobangla
• BAPEX
• gas purchase and sale agreement
• joint venture agreement
• Feni gas field
• Chattak blowout
• force majeure
• court injunction
• exclusive jurisdiction
• corruption
• compound interest
• escrow
• SOFR
• consequential loss exclusion
• set-off time bar
• contract-based ICSID jurisdiction
• State entity designation

Summary generated with AI from the published documents — refer to the award for the authoritative text.