FRONTIER HOLDINGS LIMITED v PETROLEUM EXPLORATION (PRIVATE) LIMITED

Outcome: The Singapore International Commercial Court (the “SICC”) allowed the application by Frontier Holdings Limited (“FHL”) in SIC/OA 17/2024 (“OA 17”) to set aside a ruling on jurisdiction (the “Jurisdictional Ruling”) that was made against it.

1 By a contract dated 5 January 2006, the President of Pakistan (the “President”) granted Petroleum Exploration (Private) Limited, Pakistan (“PEL”) exploration licences in respect of two areas, namely, the Badin South Block and the Badin North Block (collectively, the “Blocks”). That same day, the President and PEL also concluded Petroleum Concession Agreements (“PCAs”) in respect of each block. By the PCAs, PEL was awarded a 100% working interest in each block and thereby became a Working Interest Owner (“WIO”) in respect of each block.

2 Article 28 of the PCAs provided for the resolution of disputes arising out of or in connection with the terms of the PCAs, or any licence or lease granted. Article 28.1 stipulated that if a dispute could not be resolved amicably within a reasonable period of time, then the dispute was to be submitted to the International Center for Settlement of Investment Disputes (“ICSID”). If ICSID did not take jurisdiction over the dispute, then, under Art 28.2 of the PCAs, the dispute was to be resolved by arbitration under the auspices of the International Chamber of Commerce (“ICC”). Article 28.3 stipulated that Art 28 was only applicable to a dispute between Foreign Working Interest Owners (“FWIOs”) inter se or between FWIOs and the President. If a dispute arose between Pakistani Working Interest Owners (“PWIOs”) inter se or between PWIOs and the President, the arbitration was to be conducted in accordance with the Pakistan Arbitration Act, 1940.

3 Also relevant to this dispute was Art 29.6 of the PCAs. Article 29.6 of the PCAs stated that where matters were not specifically dealt with in the PCAs, the matters would be governed by, among other things, the Pakistan Petroleum (Exploration and Production) Rules 2001 (the “Rules”). Rule 74 of these Rules provided that any dispute regarding a petroleum right or anything connected to such right was to be resolved by arbitration in Pakistan under Pakistani law.

4 Annexed to the PCAs was a form of Joint Operating Agreement (“JOA”). The purpose of the JOA as stated in the recitals was to further define the rights and obligations of WIOs and to regulate the conduct of the operations. Article 17 of the JOAs provided that any dispute arising out of the JOAs was to be dealt with mutatis mutandis in accordance with Art 28 of the PCAs. Also relevant was Art 18.1 of the JOAs, which provided that if the JOA conflicted with the PCA, the JOA would be regarded as modified to conform to the PCA. In this regard, Art 1 of the JOAs further stated that if there were any difference or inconsistency between the terms of the JOAs and PCAs, the terms of the PCAs were to prevail.

5 In April 2006, FHL and PEL entered into a Farm In Agreement (“FIA”) and a Deed of Assignment (“Assignment Agreement”) in respect of each block, whereby 50% of PEL’s interest in the concessions was assigned to FHL. The Assignment Agreement (to which the President was also a party) amended the PCAs and JOAs to accommodate the acquisition by FHL of its interest in the concessions. The FIAs also contained an arbitration agreement providing for arbitration under the auspices of the ICC. Each of PEL and FHL subsequently assigned part of their interests such that at the time the dispute arose, PEL held a 47.5% working interest in the JOAs, FHL a 27.5% interest and a third party a 25% interest.

6 In June 2022, as the operator of the JOA, PEL sought to forfeit FHL’s interest in the Badin North Block for its failure to meet a cash call. Thereafter, in January 2023, PEL sought to forfeit FHL’s interest in the Badin South Block for its failure to meet a cash call in respect of that block. FHL disputed PEL’s entitlement to forfeit its working interests. FHL commenced an arbitration against PEL under the ICC, seeking declarations that PEL was in breach of each of the JOAs, as well as damages and equitable compensation. Due to a lack of agreement between the parties, the ICC fixed Singapore as the seat of the arbitration.

7 PEL contended that the tribunal constituted by the ICC to hear the arbitration lacked jurisdiction to hear the dispute because the JOAs did not provide for ICC arbitration in disputes between a FWIO like FHL and a PWIO like PEL.

8 In the Jurisdictional Ruling, the tribunal by majority determined that it had no jurisdiction to hear the dispute. FHL thereafter applied by OA 17 to set aside the Jurisdictional Ruling. FHL also sought ancillary orders dealing with the further conduct of the arbitration if its application to set aside the Jurisdictional Ruling was successful.

9 The single issue was whether the tribunal had jurisdiction to hear the dispute between FHL and PEL. Determining the answer to this issue turned on a construction of the concession documents. Under Pakistani law, in divining the intention of the parties, a court would look to the words of the agreement and construe the document as a whole. Where the words of the agreement were ambiguous, the court could consider the contract’s commercial purpose and the factual background against which that contract was made. If the words of the agreement on their plain and ordinary meaning led to inconsistency within the document or absurdity, the plain and ordinary meaning of those words could be reasonably modified to avoid absurdity and inconsistency and reflect the parties’ intention: at [25] and [101].

10 Here, in determining how a FWIO-PWIO dispute was to be dealt with under the PCAs, there was ambiguity in applying Art 17 of the JOAs to Art 28 of the PCAs. In resolving this ambiguity, it was appropriate to ascertain the parties’ intention by considering the operation of the provisions in context and with regard to the surrounding circumstances. The court then noted the following: at [102]–[103].

11 First, the PCA viewed in isolation was primarily concerned with the respective rights and obligations of the President and WIOs, rather than the rights and obligations of WIOs inter se. This was reflected in Arts 28.1 and 28.2 of the PCAs, which were confined in their terms to disputes between the President and WIOs. In that context, Arts 28.1 and 28.2 of the PCAs referred to disputes involving FWIOs and the President while Art 28.3 provided that disputes between the President and PWIOs were to be dealt with under the Pakistan Arbitration Act, 1940. Whilst Art 28 did not deal with FWIO-PWIO disputes, viewed as a whole, the article revealed an intention that disputes involving FWIOs were to be dealt with other than by Pakistani arbitration: at [104]–[105].

12 Second, a JOA was annexed to each of the PCAs, with the PCAs themselves envisaging assignments of interests. From the outset, therefore, it was envisaged that parties other than the original Pakistani parties could become parties to the JOAs and become subject to the dispute resolution provision in Art 17 of the JOAs. Third, when FHL acquired its interest, it became a party to the PCAs and the JOAs. In this regard, the Assignment Agreement between the President, PEL and FHL, by which FHL’s working interest was assigned to it, was an appendix to the FIA, which contained an ICC arbitration clause: at [106]–[107].

13 Fourth, the construction contended for by PEL – ie, that FWIO-PWIO disputes fell to be determined by Art 29.6 of the PCAs and Rule 74 of the Rules – made the words “mutatis mutandis” in Art 17 of the JOAs unnecessary if not otiose. This was because any adjustments to Art 28 of the PCAs was only necessary in the case of FWIO-PWIO disputes (with FWIO and PWIO disputes inter se already being dealt with by Art 28.3 of the PCAs). Once it was shown that the intention of Art 28 of the PCAs was to resolve disputes involving FWIOs by arbitration outside Pakistan, effect could be given to the expression “mutatis mutandis” by substituting “the President” with “a Pakistan working interest owner”. Reading Art 28 of the PCAs in conjunction with Art 17 of the JOAs evinced that intention. Further, reading Art 17 of the JOAs with Art 28 of the PCAs to mean that FWIO-PWIO disputes were to be dealt with by ICC arbitration was not affected by Arts 1 and 18 of the JOAs. This was because Art 29.6 of the PCAs and Rule 74 of the Rules were default provisions. Once it was concluded that the parties intended for Art 28 of the PCAs to operate in a particular manner to deal with FWIO-PWIO disputes under the JOAs, there was no inconsistency and therefore no basis for Arts 1 and 18 of the JOAs to operate: at [109]–[111].

14 Fifth, it was irrelevant that FHL was not a party to the PCAs when they were originally entered into. Sixth, it was a strained construction of Art 17 of the JOAs to say that despite its express incorporation of Art 28 of the PCAs, the resolution of the dispute was not to be governed by that Art 28 but rather by a rule referred to in the default provision. This was especially so when the rule in question (ie, Rule 74) was part of a set of rules designed to regulate the relationships between the Pakistani Government and applicants for or holders of Pakistani petroleum permits, leases or licences. Finally, that the FIAs contained an ICC arbitration clause provided support for the contention that the parties’ intention at the time FHL entered into the PCAs and became a party to the JOAs was for FWIO-PWIO disputes under the JOAs to be governed by international arbitration: at [112]–[114].

15 In the circumstances, the majority of the tribunal was incorrect in contending that the tribunal had no jurisdiction to hear or determine the dispute. In this regard, the court agreed with the judgment and reasons of the England and Wales Court of Appeal in Hashwani and others v OMV Maurice Energy Ltd [2015] EWCA Civ 1171: at [115]–[116].