The illegality at the root of the Exxon contract – Making six licences into one

(This is the third of a series of articles by Transparency Institute of Guyana Inc on the Production Sharing Agreement signed between the Government of Guyana and Esso Exploration and Production Guyana Limited, a subsidiary of ExxonMobil)

Today we want to examine the validity of the exercise by the minister of the discretion provided by regulation 13(3). Our research shows that no other country in the world has seen it fit to do what our minister did in 1999. The minister at the time used her discretion to exceed the maximum stated, and issued instead, 5 times as many (not 10 as was repeated over and over by our leaders themselves over the period – We will address this miscalculation in a special article).  

Our introductory column prefaced the series of articles which continues today. We explained that the first article published on April 27,2018 was intended to be followed immediately by this one. That previous article about the ExxonMobil contract addressed the illegality involved in exceeding the 60-block maximum in a single license (see SN, April 27, 2018). We continue by developing that point.

It is our contention here that the exceeding of this 60-block maximum is illegal by the very fact that it plainly contravenes the law, i.e., the 1986 Petroleum Act. While that claim has been made before, we analyze the basis for the claim as against the response by the current minister of natural resources Raphael Trotman, supported by members of the previous administration.

The Act

The act provides that “An application under this Act for a licence … shall be made in accordance with the Regulations (S11(a))”. Regulation 13(2)c provides that “it shall, subject to paragraph (3), be in respect of not more than sixty (60) blocks”. This paragraph 3 on which the Minister confirmed that he and his 1999 predecessor were relying for the authority to exceed the 60-block maximum, as was done and retained in the 2016 agreement provides that “The Minister may consider an application in respect of ‘more than sixty (60) blocks where the Minister is satisfied that special circumstances exist for doing so”.

Our contention is that a) the special circumstances invoked by Minister Trotman (and confirmed as the reason by members of the 1999 government) are alien to those contemplated by the regulations, b) even if they were acceptable special circumstances, the exceeding of the maximum by over 400% is unreasonable and is therefore an abuse of discretion, tantamount to acting outside of authority and that this makes the act ultra vires or void.

To complete the case for illegality, we contend that there was a simple and legal alternative available to the minister to grant custody of the seabed.

An unnecessary action

The minister had a much less dubious means at her disposal. If, as is being claimed, the government wished to award the total area of 26,800 square km to a certain type of company in 1999, the then minister could have issued the same area to the same companies adhering to the maximum of 60 blocks per licence – i.e., awarding 6 separate licences.

The law provides for retail, not wholesale licensing of that area. The question might be raised as to what would happen in the event of relinquishment as provided by law. The simple solution would be to agree with the other companies to rotate the blocks relinquished among themselves.

We already showed in our first article (see SN 27th April, 2018) how material this is. It is costing Guyana somewhere in the order of US$40 billion in signing bonus earnings. Since the issuance of each licence block goes with an agreement, where there should have been 6 or more separate agreements, there is only one agreement controlling all blocks. The act anticipates that there will be licence blocks returned after unsuccessful exploration. The one agreement which was done after the first discovery locks in all the blocks since the clauses of that agreement make a nullity of the relinquishment provisions of the act.  

 Unfettered discretion

We have reason to believe that most courts would reject the assessment that the discretion exercised by Mrs. Jagan in issuing the licence was unfettered. Professor of Public Law and Deputy Chair of the Faculty of Law at the University of Cambridge, and a Fellow of St Catharine’s College, Cambridge and Legal Advisor to the House of Lords Select Committee on the Constitution, Mark Elliot, wrote in 2013:

 “Public law orthodoxy is – … – that there is no such thing as an unfettered discretion. Indeed, this point is – paradoxically – affirmed by Haddon-Cave J’s assertion that, the so-called “unfettered” nature of the power notwithstanding, the Secretary of State is obliged to “act rationally and in accordance with the general law”.

The Richard III ruling (Elliot, 2013) took into consideration the fact that the British Parliament is sovereign. Section 9 of the Guyana Constitution makes it clear that sovereignty belongs to the people of Guyana. No minister exercises discretion on his own behalf but ultimately on behalf of the people of this country. The Richard III ruling is therefore even more relevant to our circumstances.

Dr. Paul Daly, Senior University Lecturer in Public Law, University of Cambridge and the Derek Bowett Fellow in Law at Queens’ College, Cambridge wrote in 2016: “Where a statute says something like “the minister may, in his absolute discretion…”, or “if in the minister’s opinion, it is necessary to do so, she may…”, it would be easy for courts to say that the exercise of the power in question is simply a matter for the minister. But they have not said this. Rather, they have generally insisted over the last century that there is no such thing as unfettered discretion. The famous passage from Rand J.’s reasons in Roncarelli v. Duplessis is worth repeating: “there is always a perspective within which a statute is intended to operate. [2] So when powers are used for improper purposes, or based on irrelevant considerations, courts will intervene.  All things being equal, the existence of ex post control by the courts should reduce the likelihood that discretionary powers, even broadly drawn ones, will be misused.”

The Ombudsman of Western Australia provides guidelines on his website from which the following is extracted:

“Decision-makers must use discretionary powers in good faith and for a proper, intended and authorised purpose. Decision-makers must not act outside of their powers. No decision-maker has an unfettered discretionary decision-making power. It is not sufficient to exercise discretion and approve an application simply because it seems the right thing to do. When exercising discretion, decision-makers need to act reasonably and impartially… It is important to apply the values that the legislation promotes, professional values and the values of the agency, not personal values. In exercising discretionary powers, decision-makers should have regard to any specific requirements as well as satisfy general administrative law requirements. Some of the general principles relevant to the exercise of discretion are: • Acting in good faith and for a proper purpose; • Complying with legislative procedures; • Considering only relevant considerations and ignoring irrelevant ones; • Acting reasonably and on reasonable grounds; • Making decisions based on supporting evidence; • Giving adequate weight to a matter of great importance but not giving excessive weight to a matter of no great importance; • Giving proper consideration to the merits of the case; … Exercising the discretion independently and not under the dictation of a third person or body. A failure to act within the power provided or to comply with general administrative law principles can result in a review and overturning of a decision.” (Ombudsman, Western Australia, 2019).

Valid special circumstances

Worldwide, discretion is provided to increase the maximum for one reason only. That reason has to do with ensuring the areas available for licensing are economically viable. The remnant after relinquishment of a portion of a license block could be attached to a connected block which may already be 60 graticular blocks if that remnant will not be attractive to an investor otherwise. Or perhaps, the viability may have to do with geophysical information subsequently learnt about that block.

For the court to uphold this unusual action it would mean:

that despite the published diagram showing available licence blocks of no more than 60 graticular blocks each or licence blocks increased to accommodate stranded pieces (we urge the reader to review our article of last year in which we explain the two types of block), the court would uphold issuing to Esso an area 5 times that amount. Or it would mean that there was no published licence block diagram which is inconsistent with DPM Murray’s statement in 1991 (In our next article we will discuss what Deputy Prime Minister Winston Murray said in 1991, that there was then a new petroleum policy which was debated and approved in Parliament).

That the court would ignore the invalidity of the claimed special circumstances under which the action was taken to exceed the maximum, if our research showing that the problem of Venezuelan pressure showing up as a deterrent to oil investment was too late to affect the 1999 contract (we intend to show in our next article that this contract appeared to have been signed during a window of good relations between Guyana and Venezuela which was brought to an end by Venezuelan objection to the signing of the agreement with Esso).

The court would ignore the fact that the security which thereby became supposedly necessary was rendered ineffective by subsequent developments between the date of the 1999 signing and the 2016 signing. The security guard had been retreating to a safe distance during that time and would have breached an implied term of the contract.

That the current minister had one year from 2015 when he became minister to 2016 when he signed the same contract (according to him it is the “same contract” – however that works – with Exxon) to notice that the resort to such an unconventional device was unnecessary.

That the court ignore that the security guard (Exxon) somehow managed to convert his shyness for duty into financial gain by convincing the current minister to accept his lack of appetite for militancy into a case for activation of the force majeure clause in the 2016 contract.

So, the minister in 1999 broke the law for the sake of a problem whose existence is difficult to defend, for which she applied a solution that was unnecessary. She could have rotated the blocks or relinquished areas among the heavy-weight companies she required and thereby achieve the same purpose.

Conclusion

The absurd use of discretionary power to stretch a maximum beyond recognition for a reason that is suspect at best exposes the decision as a prime target for judicial review. It is obviously worse if the reason was unnecessary as we have just argued. In our next article we shall discuss this claim that Venezuela was the reason why the government needed to break the law. We will show that what looks plausible because of current behaviour might just have been, in actuality, without a basis when the records of that time are examined.

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