Strategic Options Available When Catastrophe Strikes the Major International Energy Project
Bishop, R. Doak, Dimitroff, Sashe D., Miles, Craig S., Texas International Law Journal
Imagine the new administration of a foreign government terminates a multi-billion dollar project after a company has spent several hundred million dollars in reliance on its contract. Contemporaneous civil unrest results in damage to the company's assets. And two executives of the company's foreign subsidiary are arrested on criminal charges stemming from a claimed company obligation.
What options are available to the international energy company when catastrophe strikes a major project abroad? The term "catastrophe" is used in this paper to describe any species of events that may have a major effect on a company's overseas operations or revenues. Some calamities strike suddenly and unexpectedly-like explosions and chemical releases-while others may evolve gradually over months, or even years, such as popular calls for political action during an election year, followed by governmental or regulatory decrees. Increasingly in the past few years, disputes have arisen from privatization of petroleum exploration and power plant projects.
Often there is no clear-cut legal path for resolution of the problem. Even the local courts of a foreign country-which may not be considered a promising option for many reasons-may not provide a clear jurisdictional route for resolving the dispute. When faced with such problems, counsel must determine (1) what international claims may be pursued, (2) what forums are available to pursue them, and (3) what parties may be the subject and object of such claims.
The key to the company's success will often lie in the development of a creative, multi-faceted strategy for "working" the problem. In many cases, at least part of this strategy must be created immediately, within hours or days of the events. A crisis center may have to be created and contingency plans developed. Legal action will generally constitute a significant part of the strategy, but often it will be only a part. A full strategic plan should be developed addressing other aspects of the problem such as local and international political and economic actions, pursuit of local legislative or regulatory relief, and a local or even international public relations campaign. Each of these cards must be played carefully-at the right time and in the right way.
The following are illustrative of the types of disasters that can occur in a major international project.
In 1975, Westinghouse was beset by $2 billion of claims in lawsuits filed in the United States and Sweden by twenty-seven utilities after the price of uranium increased sevenfold and Westinghouse was unable to meet its supply obligations at fixed contractual prices. Westinghouse settled for approximately $950 million, but struck back by suing twenty-nine international uranium producers under U.S. antitrust laws claiming they acted as an international cartel and fixed prices.
In the early 1980s, Sun Oil found itself unable to perform an exploration and development contract with the Libyan government because of the U.S. embargo on trade with Libya and restrictions on travel to that country. Libya sought $100 million, but ultimately obtained a $20 million award against Sun Oil from an international arbitral tribunal, which rejected Sun Oil's force majeure defense.
Union Carbide suffered a chemical release from a plant in Bhopal, India, in 1984, killing 3,000 people and injuring thousands more. The federal lawsuits brought in the United States by individual plaintiffs and the Indian government were dismissed on the ground of forum non conveniens. Cases filed in the Indian courts were settled, including a $470 million settlement with the Indian government. Criminal charges were brought against top executives of the company in India.
Texaco was sued for $1 billion in federal courts in Texas and New York in the mid1990s by native Indians from Ecuador for alleged improper hazardous waste disposal and petroleum spills. …