3 Political & Legal Environment

8/22/2019 3 Political & Legal Environment

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In the Name of Allah

OIL AND GAS LAWBy: Dr S N Ebrahimi

LLB, LLM, PHDInternational law

Imam Sadiq [email protected]


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Imam Sadiq University 1385

Dr

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Overview of the Topics

3. LEGAL AND CONTRACTUAL ASPECTS OF OIL ANDGAS CONTRACTS

General Liability

Contractual v. legal Civil liability v. criminal liability

Termination Force majeour Applicable law Dispute Settlement

Others Case study

Buy-Back Production Sharing


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The Political and LegalEnvironment


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Introduction

1. No single, uniforminternational commerciallaw governing foreign

business transactionsexists

2. International marketers

must comply with thelaws of each countrywithin which it operate

3. The legal systems ofdifferent countries are sodisparate and complex

4. Best to get expert legaladvice when doing

business in anothercountry


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The Political and Legal Environment

Learning Objectives:

Understand the home country political and legal environment

Understand the host country political and legal environment

Adapting to different political and legal systems

International politics and law


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Home and Host Country Political Environments

The Uncontrollable

Sovereignty of nations and nationalism

Stability of government policy

Political risks in global business

Confiscation

Expropriation

Domestication

Embargoes, Boycotts and Sanctions

Violence


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Economic and Commercial risks

Exchange controls

Import restrictions

Local-content laws

Price controls

Labor problems

Tax controls

Commercial risks

Assessment of potential political risks

Politically sensitive products


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Reducing political vulnerability

Good corporate citizenship

Managing citizen affairs

Understand the differences in political ideologies

Strategies to lessen political risks

Joint venture

Expanding the investment base (Local financial partner)Marketing and distribution

Licensing

Planned domestication (Greater local participation)

Use risk reduction through adequate insurance

Political payoffs (U.S. Foreign corrupt practices act)


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Strategies to reduce commercial risks

Joint venture

Investment base expansion

Marketing and distribution

Licensing

Planned domestication (Greater local participation)

Other


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Role of Government in Encouraging Global Trade

Trade liberalization

Attract FDI

Create and promote free trade zones

Open up the market for foreign products

Promote transfer of technology

Tax holidays for FDISpecial incentives for importation of State of the art

technologies

Provide market information and incentives for local companies to

seek foreign markets Host or encourage trade missions

Promote competitiveness of target industries

Provide/Invest in necessary business infrastructure

development


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Home and Host Country Legal Environment

Bases for legal systems

Common law (British/English)

Code law (Roman law)

Islamic law

Socialist law

Legal dispute situations

Between governments

Between companies and governments

Between companies


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Determination of legal jurisdiction

Jurisdictional clauses included in contract

Location of contract agreement Location of contract performance

International dispute resolution

Conciliation of mediationArbitration

Arbitration centers

Arbitration clauses

Enforcement of Arbitration

Litigation


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Commercial law within Countries/Regions

Marketing laws

Green marketing legislation Antitrust laws

European Union

Treaty of Rome

Articles 85-86 (Private Companies)

Articles 92, 93, 37 (Government/States)

Articles 222 and 90 (Public enterprises)


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The Legal and

Contractual Framework

and Terminologies


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Engineering and finance people should have a proper

understanding of of legal and contractual aspects of law, e.g:

International Sale Contracts

Intellectual Property

Employment Law

Construction Contract

Product Liability

(Breach, Negligence, Fraud)

Dispute Resolution

The Legal and Contractual Framework andTerminologies


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Contractual and Legal ConsiderationsPreparing Contracts For Services

Interpreting Contracts once Project is Underway

Managing To Minimize Personal and Organizational Liability

Anticipating or Preparing For Expert Witness Testimony

Being Aware of Local, and International Rules and Regulations

Being Aware of Additional ResourcesFunding (Domestic and Foreign)

Being Aware of Pending or Recent Legislations

The Legal and Contractual Frameworkand Terminologies


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Breach Violation of right, Duty or Law

Fraud Intentionally deceitful practice

Liability Being bound or obligated according to law or

equity

Negligence Breaches duty below the appropriate

standard of care

Tort Similar to wrong distinguished from a

crime

The Legal and ContractualFramework and Terminologies

Th L l d C t t l


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The Legal and Contractual

Framework and Terminologies

Issues Affecting Ability to Trade andOperate Oil and Gas Offshore Contracts

differences between legal systems

question of which laws will apply in disputes rules of competition

patent registration

extra-territoriality of overseas legislation product liability

Th L l d C t t l


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General Contract Terms

Those clauses of a contract which are notnegotiated.

These clauses, often in fine print, may ormay not be read and may or may not becomprehended or comprehensible.

Thus courts may, at their discretion, setthem aside if manifest injustice resultsunder a theory of unconscionability.

Th L l d C t t l


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Capacity

The law presumes that the parties to acontract have the requisite contractualcapacityto enter into the contract.

Certain persons do not have this capacity:

Minors

Insane persons

Intoxicated persons

Th L l d C t t l


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Freedom of Contract and Legality "Freedom of contract" within limitations prescribed by the law. Breaching these limitations causes the contract to be null and void. Partially void if it concerns only some of the provisions and the void

provisions are not essential for the contractual relationship.

Contracts against the law are void. Against mandatory provisions Illegal subject matter Fraud against the law Contracts against public morals limitations to restriction of personal rights Extent of restraints of trade

Objective impossibility makes a contract void.

"Freedom of form" but if the law prescribes a specific form, observing it is acondition for validity.


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The Legal and Contractual Framework and

Terminologies

Written Instruments all legal transactions to establish, transfer,

convert, renew, state, or release a right must beproved by a written instrument.

Necessary written form Simple written form Official form

Public notary Land registry official

Registration Publication



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Illegality One requirement to have an enforceable contract is that the object

of the contract must be lawful. Contracts with an illegal object are voidand therefore

unenforceable.

There are two key categories of illegality: Contracts contrary to statutes Contracts contrary to public policy

Since illegal contracts are void, the parties cannot sue fornonperformance.

The court will generally refuse to enforce or rescind an illegal

contract. The court will generally leave the parties where it finds them



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Necessary Legal Implications of International SalesContracts

Defining key terms (eg. Incoterms 2000 which are the standardtrade definitions most commonly used in international contracts)

limiting agreement to the contract

describing the goods contents of the payment clause the retain property until payment clause trade terms (shipping terms, as with Incoterms 2000) force majeure dispute resolution applicable law and jurisdiction fees and charges - including what you are responsible for and what

your buyer is responsible for

http://www.austrade.gov.au/australia/layout/0,,0_-1_-2_-3_STAG220909-4_-5_-6_-7_EXTERNAL,00.htmlhttp://www.austrade.gov.au/australia/layout/0,,0_-1_-2_-3_STAG220909-4_-5_-6_-7_EXTERNAL,00.html


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Force Majeure:

Force majeure as a concept does exist in thecommon law but is limited to man made

disasters. In French law however force majeure

encompasses all unforseeable disasters whetherman made or not.

Unforseeability is the key element to theexclusion of liability which may arise via forcemajeure.



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Act of God An unforseeable natural disaster which cannot be

prevented. Where the injury is uniquely due to an act ofGod it is a defense against liability. Acts of God will nothowever excuse delays in fulfilling contractualcommitments because the duties assumed arenegotiated including the responsibility for lossesresulting from natural disaster. Thus if the duty of theparty is in tort acts of God will excuse their liability. Butif the duty of the person is in contract then the

contractor must have included a clause covering acts ofGod even though the misfortune was unforseeable andcould not have been prevented. Most insurancecontracts include clauses to exclude liability of theinsuror for acts of God.



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Act of God A latin maxim applie: Actus Doi nomini facit

injuriam: An act of God does wrong to no one

thus no one is responsible in tort for the resultof an inevitable accident.

Acts of God can be distinguished in the common

law from force majeure: Acts of god are naturaldisasters whereas force majeure, at least in thecommon law, consists of man made disasters.



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Organisational Duty The liability of a corporation is the same as that

of a natural person. However the corporations shareholders unlike

its board of directors and employees will onlybe liable for the torts of the corporation to theextent of their investment.

Like any employer a corporation can be held

liable for torts to its employees which occur atthe workplace according to the vicarious liabilityimposed by the principle of respondeat superior



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Unconscionability Some lawful contracts are so oppressive or manifestly unfair that

they are unjust.

To prevent the enforcement of such contracts, the courts havedeveloped the equitable doctrine ofunconscionability.

A contract found to be unconscionable under this doctrine is calledan unconscionablecontract, or a contract of adhesion.

Elements that must be shown to prove that a contract or clause isunconscionable:

The parties possessed severely unequal bargaining power.

The dominant party unreasonably used its unequal bargainingpower.

The adhering party had no reasonable alternative



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Immunity

Exemption from legal duties.

In so far as torts are concerned,immunities may be classified according totheir extent, being absolute or qualified,or their object, being governments orpersons.



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TYPES OF IMMUNITIES:

Absolute Immunity

Absolute immunity is unconditional immunity from all

personal civil liability, e.g. diplomatic immunity.

Charitable Immunity

Immunity from civil liability and particularly as regards

negligent torts that is granted to a charitable ornonprofit organization such as a hospital.



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Corporate Immunity

Immunity from liability in tort granted to anofficer of a corporation who acted in good faithwithin the scope of their duties.

Discretionary Immunity

Qualified immunity from civil liability for tortious

acts or omissions that arise from a governmentemployee's discretionary acts performed as partof their duties



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Executive Immunity Immunity granted to officers of the executive branch of

government from personal liability for tortious acts oromissions done pursuant to their duties. E.g. the USpresident's executive immunity is absolute, the immunityof other federal executive officials is qualified.

Judicial Immunity

Absolute immunity from liability that is granted to judgesand court officers such as grand juries and prosecutorsand for tortious acts or omissions done within the scopeof their jurisdiction or authority.



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Legislative Immunity

Absolute immunity from liability that is granted

to legislators for tortious acts or omissions donein the course of legislative activities.

Official Immunity

Discretionary immunity from personal liabilitythat is granted to public officers for tortious actsand omissions



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Governmental immunity The principle of the common law is that the king can do

no wrong that is that there be no remedy against thesovereign because of sovereign immunity unless thesovereign waive that immunity.

A principle precluding the institution of a suit against thegovernment without its consent.

Governmental immunity exempts the government fromliability for its torts. It is referred to as eithergovernmental immunity or as soveriegn immunity. Theterms are synonymous.



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Enterprise liability

Liability of a business either for the on-the-job injuries of its employees or for thecollective liability of an entire industrialsector where it is clear that that sectorhad produced a defective product but

where the specific manufacturer cannot beidentified.



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Monetary Damages

Monetary damages are the ordinarily presumedremedy in the common law.

They seek to compensate the injury of theplaintiff via a determination of the cashequivalent of the loss to the defendant, theinterest thereon, and the pain and sufferingsuffered by the defendant.

They must be distinguished from real restitution.



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Nominal damages

An award to a plaintiff of a symbolic sum tofullfil the satisfaction interest of the injured

plaintiff; Purely symbolic damages awarded toremedy an injury to a plaintiff where nodamages occur.

The objective of nominal damages is to provideemotional satisfaction to the plaintiff.



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notice of termination

A written or verbal notice given by oneParty versus other to end a Contractemployment. Also known as "notice ofdischarge".



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Possession Possession is the fact of occupation or use of an

object without regard to the legal right to do so. Thus possession is either rightful or wrongful.

Rightful possession is one of the rights of property,namely the right of use or usus.

The right of property consists in the absolute andexclusive control of the object and includes the rightsof usus, use, abusus, abuse, and fructus, fruits, that

is all that grows thereon. Possession is the right of usus i.e. to enjoy and

dispose of an object or right.



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Quasi-Contract

A quasi-contract is the legal act of aperson, by which he obligates himself

towards another without any agreementbetween them.

For example, a physician who treats an

unconscious patient at the scene of anaccident will have an action in quasi-contract for the cost of her services.



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Remedies It is a maxim of law that for every wrong there is a remedy. Remedies are those legal aids that may be invoked by plaintiffs to

cure the injuries done to them by defendants. There are a variety of remedies:

monetary damages, injunctions, specific performance, and replevin among others such as writs of mandamus and habeas corpus.

The remedies which most concern tort and contract law are moneydamages, injunction, and specific performance.

Common law prefers money damages and does not ordinarily awardspecific performance.



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Civil Liability

Liability in tort for negligent, reckless, orimputed liability due to strict negligence.

Liability not on the bases of privatecontract or other promise but because ofsocial relations.



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Tort

A tort is a violation of a legal dutyresulting in damages to the plaintiff.

Delict is a synonymous though rarely usedin English despite the fact that it is theterm for tort both in French (dlit) and in

German (Delikt).



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Unjust enrichment Unjust enrichment occurs where a defendant has

wrongfully profited at plaintiffs expense. There would clearly be a remedy at equity for unjust

enrichment. Statutes may also fashion legal remedies. The court regards the unjust enrichment as held in

constructive trust by the defendant. To prove unjust enrichment plaintiff must show a

deprivation of their property corresponding to anenrichment, that is an augmentation in the plaintiffswealth without however any legal reason for thatenrichment.



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Warranty

A promise, whether express or implied,that a good shall be free of defect.

Thus cases of products liabilities may befounded on a theory of warranty as well,either as an independent or alternative

theory of liability.



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Implied warranty.

A warranty which the law imputes to thecontracting parties based not on the express

terms of the contract but on the conduct andcircumstances which give rise to implicitassurances of protection and usefulness of theproduct.

Implied warranties may be a foundational oralternative theory to products liability claims



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Burden Of Proof The burden of proof is the duty of one party in a lawsuit to prove

the point which they assert. Ordinarily the movant bears the burden of proof, expressed in the

maxim "actor incombit probari".

Different levels of proof are required depending on the type of case. In a civil case the plaintiff must prove the elements of their claim by

a "preponderance of evidence" i.e. that their assertion is more likelythan not true.

In a criminal trial the burden of proof required of the prosecutor isto prove the guilt of the accused "beyond a reasonable doubt," amuch more difficult task.



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Capacity

Legal capacity is the ability of a person, whether naturalor artificial, to perform civil acts .

This concept is in fact somewhat confused because the

notion of legal existence is confounded with the notionof capacity to alienate.

Legal capacity is divided into two concepts: legalpersonality and legal capacity.

While all legal persons enjoy rights and bear duties, onlypersons possessing legal capacity can voluntarily acquireor alienate rights and duties.



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Duress

Overwhelming force which compels adefendant to act or fail to act to the injuryof another.

Though that act or omission wouldnormally constitute a tort, here it may not

if the defendant can prove that theirconduct was justified because of duress.



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Causation The notion that one event leads to another. Law distinguishes between remote causes which

while necessary were not sufficient and material

causes i.e. necessary and sufficient causes. Those causes but for which the accident would

not have occurred are necessary but not alwayssufficient.

When a cause is both necessary (legalcausation, i.e. sine qua non causation) andproximate, i.e. sufficient, that is legal causation,then a tort will exist in common law.



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Defective Product Where a product is defective the products manufacturer

can be implicated in tort on a theory of strict liability.

A product is in a defective condition, i.e. is unreasonablydangerous to the user, when it has a propensity ortendency for causing physical harm beyond that whichwould be contemplated by the ordinary user.

A defective condition is a legal cause of injury if itdirectly produces the injury. A defective condition maybe a legal cause of damage even though it operates incombination with the act of another, or some othernatural cause.



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Thus, in cases involving defective or unreasonablydangerous products the manufacturer may be liableeven though it exercised all reasonable care in thedesign, manufacture and sale of the product in question.

Manufacturers are not on always liable for accidentsresulting from misuse of their products.

The manufacturer is not an insurer. The mere possibility that injury result from the use of a

product is insufficient to impute liability to amanufacturer.

Manufacturer is required to make a product free ofdefective and unreasonably dangerous conditions.



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Due Care / Standard of Care The care that an ordinarily reasonable and

prudent person would use under the same orsimilar circumstances.

Proving the failure to exercise due care toward aperson who one has a legal duty resulting in

injury to that person establishes a prima facietort.

Due care is one of the standards of care in tort.



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Fault

The entire system of negligent torts, withthe exception of strict liability, is

predicated on the notion of some fault,i.e. the absence of the care of areasonably prudent person.

Fault can be defined as negligence or thefailure to perform a legal duty.



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DEFAULT: The failure to fulfill a legalobligation, such as neglecting to pay back a loanon schedule.

DUTY TO WARN:The legal obligation to warnpeople of a danger. Typically, manufacturers ofhazardous products have a duty to warncustomers of a product's potential dangers andto advise users of any precautions they shouldtake.



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Negligence

The failure to meet the duties of socialobligation, general judged by the standard of a

reasonably prudent person.

GROSS NEGLIGENCE:

Failure to use even the slightest amount of carein a way that shows recklessness or willfuldisregard for the safety of others.



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Disclaimer / Waiver Ordinarily a tort will imply a remedyfor every right

there is a remedy. However a plaintiff may have waived their right, either

expressly or implicitly. Where that waiver was knowing, (i.e. appreciating the

risks and dangers) intelligent and voluntary (absence ofcoercion) that plaintiff will not be able to recover forthey have accepted the risk and thus the damage.

To avoid tort liability manufacturers and merchants willoften include disclaimer clauses in their sales contracts.

However these clauses may or may not be declaredvoid as against public policy.



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e ega a d Co t actuaFramework and Terminologies

ARBITRATION:A method of alternativedispute resolution in which the disputingparties agree to abide by the decision of

an arbitrator.

ASSIGNMENT: The transfer of legal

rights, such as the time left on a lease,from one person to another.



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gFramework and Terminologies

GOOD FAITH/BONA FIDE: Honestly and without deception. An agreement

might be declared invalid if one of the partiesentered with the intention of defrauding the

other.

BAD FAITH: Dishonesty or fraud in a transaction, such as

entering into an agreement with no intention ofever living up to its terms, or knowinglymisrepresenting the quality of something that isbeing bought or sold.



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BANKRUPTCY: Insolvency; a process governedby the company law to help when people cannotor will not pay their debts.

COMPANY BY-LAWS: A corporation's rulesand regulations. They typically specify thenumber and respective duties of directors and

officers and govern how the business is run.



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COLLATERAL: An asset that a borrower agreesto give up if he or she fails to repay a loan.

CONFLICT OF INTEREST: Refers to asituation when someone, such as a lawyer orpublic official, has competing professional orpersonal obligations or personal or financial

interests that would make it difficult to fulfill hisduties fairly.



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FIDUCIARY DUTY: An obligation to actin the best interest of another party. Forinstance, a corporation's board member

has a fiduciary duty to the shareholders, atrustee has a fiduciary duty to the trust'sbeneficiaries, and an attorney has a

fiduciary duty to a client.



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JURISDICTION: A court's authority to rule onthe questions of law at issue in a dispute,typically determined by geographic location and

type of case.

LIEN:A claim against someone's property. Alien is instituted in order to secure payment from

the property owner in the event that theproperty is sold. A mortgage is a common lien.



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LIQUIDATED DAMAGES: The amount ofmoney specified in a contract to be awarded inthe event that the agreement is violated.

MALPRACTICE:Improper or negligentbehavior by a professional, such as a doctor or alawyer. The failure of a professional to follow

the accepted standards of practice of his or herprofession.



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Representation

Entering into a legal transaction in thename of another person.

Representative

Principal



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Liability

Liability is the legal obligation of a personto be held responsable for the injury to

another whether that injury is contractual(breach of contract) or tortious(negligence, strict liability, intentional

tort).



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Liability is defined as being bound or obligated according to

the law.

Strict Liability - Liability even when there is no proof of negligence. Often

applicable in product liability cases against manufacturers, who are legallyresponsible for injuries caused by defects in their products, even if they were

not negligent.

Many Opportunities to Incur It

Breach Negligence Fraud


The Legal and Contractual Framework


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There are two general theories in product liability:

Negligence

Strict Liability in Tort

Strict Liability in Tort:

Manufacturing defects

Design defects

Failure to warn

The law defines failure to warn as the problem in two situations:

Foreseeable risks could have been protected by instructions or

warnings

The warnings themselves, when followed caused the injuries.

gand Terminologies

Th L l d C t t l F k d


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Liability: Minimizing It

Insurance: Financial Protection

Preventive practicesIncorporate Practice

Limit Practice to Safer Disciplines

Incorporate High-Risk Services and Areas Separate

Maintain Currency and Competence

Use Standard Contract Forms

Utilize Tested Legal Language

Develop, Maintain, and Use Written Guidelines

Document Everything

Supplement Written Documentation

Accept Primary Responsibility fir Use of Computer Programs and Models

The Legal and Contractual Framework andTerminologies

The Legal and Contractual Framework


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Liability: Minimizing It

Preventive practices

Separate Facts and OpinionsHire Only Insured Sub-Consultants

Respond In A timely Fashion

Limit Project Comments to Knowledgeable Persons

Avoid Financial Interest in Project

Use Peer Review

Do It Right The First Time

Sign Reports In Corporate Name Only

Communicate With Those You Serve

Place Liability-Limiting Provision in Contracts

The Legal and Contractual Frameworkand Terminologies

The Legal and Contractual Framework and


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Strict liability is a tort theory of recovery based on the alleged carelessness of the

defendant's behavior.

False or True?

Negligence is the theory of liability based on careless behavior while strict

liability focuses on liability without fault due to the extreme danger of the

behavior engaged in (transporting cases of dynamite).

The primary purpose of tort law is to undo injury to someone through the

mechanism of compensatory money damages.

False or True ?

The goal of this area of law is to try to make an injured party "whole" again byproviding money damages to cover all the costs (pain and suffering, lost salary,

medical expenses, property damage, etc.) attributable to the injury causing

behavior of the defendant.

ApplicationTerminologies


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BUY-BACK V. PSC

Main Elements of Irans Buy-


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yBack

1) Objective

Government Sovereignty and Control overNatural Resources

Access to Foreign Funds

Keeping its Market Share

Access to Advanced Technology andKnow-How


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2) Awarding Procedure

Tender Requirement

Approval of High Economic Council

Awarding Contracts to Foreign Companies

Local Content Requirement


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3) Contents Title to Assets Financing Project Inspection, Audit and Verification Contractors Reimbursement Control by the State Local Employment and Training

Safety, Health and Environment Assignment of Contract Dispute Settlement


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ii) Key Differences between Buy-Backand PS

1) Scope of Work

Development v. Exploration, Developmentand Production

Exploration and Development v. Exploration,

Development and Production


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2) Cost Recovery

3) Contractors Profit

Remuneration Fee v. Production Sharing

4) Contractors Risks versusContractors Incentives

5) Tax Implications

Documents

3 Political & Legal Environment