CJEU rules on validity of natural resources agreements
Posted on Mar 20th, 2018 By Catherine Gilfedder and James Langley
Categories: Africa, Europe, Middle East, Oil and Gas
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On 27 February 2018 the CJEU issued its judgment in the Western Sahara Campaign case (Case C-266/16). In a short judgment, the court held that the 2006 partnership agreement in the fisheries sector (Fisheries Agreement) and a 2013 protocol to that agreement are inapplicable to the territory of Western Sahara. This was because including Western Sahara within the scope of these agreements would be contrary to "rules of general international law applicable in relations between the EU and Morocco", particularly the principle of self-determination, and to the UN Convention on the Law of the Sea.
Why are we writing about fish in an Energy blog? As we explained in an earlier post on this case, the international law principles on which it turns are potentially relevant to other agreements about natural resources in areas where local populations claim rights of self-determination.
By interpreting the Fisheries Agreement and the 2013 protocol in this way, the CJEU did not have to determine whether agreements that did deal with resources in Western Sahara would be valid under EU and international law (a question Advocate General Wathelet answered in the negative). Nevertheless, the court's willingness to invoke and apply international law principles, in particular that of self-determination, is an interesting demonstration of the possible impact of those principles. This may well be of broader importance with regard to agreements that purport to deal with other territories whose populations assert – or may in future assert and gain support for – the right to self-determination.
The court's judgment relies heavily on its December 2016 judgment in Polisario (Case C-104/16), issued after the request for a preliminary ruling was made in Western Sahara. In Polisario, the court had held that the Euro-Mediterranean "association" agreement (the Association Agreement), as well as a Liberalisation Agreement (concerning liberalisation measures on agricultural and fishery products) had to be interpreted, in accordance with international law, as not applicable to the territory of Western Sahara. The Association Agreement and Liberalisation Agreement were initially also included in the Western Sahara reference, but in light of Polisario those aspects were withdrawn by the English High Court.
When interpreting the scope of the Fisheries Agreement and the 2013 protocol, AG Wathelet had considered that, unlike the agreements addressed in Polisario, the Fisheries Agreement and the 2013 protocol were applicable to Western Sahara and its adjacent waters. He reached this view on several bases, finding it was "manifestly established" that the parties intended the agreements to include Western Sahara, that their subsequent agreements and actions were consistent with this interpretation, and that it was also supported by the genesis of the agreements and previous similar agreements.
The court took a different view (without reference to the AG's Opinion). First, noting the Fisheries Agreement is stated to be applicable to "the territory of Morocco", the court held that this concept should be construed as meaning "the geographical area over which the Kingdom of Morocco exercises the fullness of the powers granted to sovereign entities by international law, to the exclusion of any other territory, such as that of Western Sahara". It stated that, if Western Sahara were to be included within the scope of the agreement, that would be "contrary to certain rules of general international law that are applicable in relations between [the EU and Morocco], namely the principle of self-determination".
The Fisheries Agreement also refers to "waters falling within the sovereignty or jurisdiction" of Morocco. Referring to the UN Convention on the Law of the Sea, the court noted a coastal state is entitled to exercise sovereignty exclusively over the waters adjacent to its territory and forming part of its territorial sea or exclusive economic zone. Given Western Sahara did not form part of the "territory of Morocco", the waters adjacent to it equally did not form part of the Moroccan fishing zone referred to in the agreement. A similar conclusion followed with regard to the 2013 protocol's scope.
While more closely tied to the text of the fisheries agreements than the AG's Opinion, the judgment suggests the court may seek to arrive at an interpretation of such agreements that respects international law insofar as possible. It is therefore a significant restatement of the importance of international law principles, particularly self-determination, to questions regarding sovereignty over natural resources in occupied territories, and therefore has potential ramifications for international agreements which purport to deal with such resources.
CJEU, international law, natural resources, sovereignty, UNCLOS
EU Advocate General restates importance of self-determination to validity of natural resources agreements
Posted on Feb 26th, 2018 By Catherine Gilfedder and James Langley
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In a landmark opinion, Advocate General Wathelet (the AG) of the European Court of Justice (CJEU) has invited the court to conclude that fisheries agreements between the EU and Morocco are in violation of the international law principle of self-determination, and therefore invalid under EU law. It comes as a clear reminder that EU institutions must respect international law principles binding upon them when entering into international agreements.
If the court follows the AG's lead, the case could have ramifications for other territories whose populations may claim rights to self-determination, such as Catalonia and the Kurdistan Region of Iraq, and for the validity under international law of agreements with the states occupying those territories.
The territory of Western Sahara is occupied by Morocco, a situation widely considered to breach the principles of international law entitling peoples to self-determination. The UN recognises Western Sahara as a non-self-governing territory occupied by Morocco.
The reference to the CJEU emanates from an English court case brought by Western Sahara Campaign UK, an NGO aiming to support the recognition of the Western Saharan people's right to self-determination. It argues that the EU-Morocco agreements (insofar as they purport to apply to Western Sahara) violate that right and so are contrary to the general principles of EU law and to Article 3(5) of the Treaty on European Union, under which the EU is required to respect international law. Under the agreements, the EU paid Morocco for access to waters including Western Sahara's.
As the measures in question related to the validity of EU law, the English court referred the case to the CJEU, itself characterising Morocco's presence in Western Sahara as a "continued occupation".
The Advocate General's Conclusions
Article 3(5) of the Lisbon Treaty states that the EU will respect the principles contained in the UN Charter, of which Article 1 sets out the principle of self-determination of peoples, while Article 73 promotes self-government. Yet the EU fisheries agreements with Morocco purport to deal with waters off the coast of Western Sahara.
The AG considered, first, that, where the relevant principles of international law (here, both treaty and customary law forming part of general international law) are "unconditional and sufficiently precise", a claimant can rely on them to challenge EU actions. He noted that the right of self-determination, because it formed part of the law of human rights, was not subject to these requirements, but in any event met them. Similarly, (i) the principle of permanent sovereignty over natural resources and (ii) the rules of international humanitarian law applicable to the exploitation of Western Sahara's natural resources were also sufficiently precise and unconditional to be invoked by the NGO.
Examining whether the fisheries agreements breached the international legal principles in play, the AG examined in some detail the historical background to Morocco's occupation. An advisory opinion issued by the International Court of Justice in 1975 had stated that Western Sahara was not a "territory belonging to no one" at the time of its earlier occupation by Spain. A referendum on self-determination under UN auspices was thus envisaged, but Morocco considered this unnecessary on the basis the population had already de facto determined themselves in favour of returning the territory to Morocco. The AG, however, concluded that Western Sahara was integrated within Morocco "without the people of the territory having freely expressed its will in that respect".
Because the fisheries agreements with Morocco make no exception for Western Sahara, the AG considered the EU is in breach of its obligation not to recognise an illegal situation resulting from the breach of the right to self-determination, and to refrain from rendering aid or assistance in maintaining that situation.
The AG also emphasised that as "Western Sahara is a non-self-governing territory in the course of being decolonised … the exploitation of its natural wealth comes under Article 73 of the United Nations Charter and the customary principle of permanent sovereignty over natural resources". He found that the fisheries agreements did not contain the necessary legal safeguards to ensure that the natural resources were used for the benefit of the people of Western Sahara. On that basis also, in his view the provisions of the agreements were not compatible with EU or international law.
Impact of the opinion
It remains to be seen whether the CJEU will follow the AG's opinion. The opinion is nevertheless significant, not only for the Western Saharan situation. It is a robust restatement of the importance of the right to self-determination, and of the consequences that may flow where it is held to be breached, as well as of the importance of the protection of natural resources in occupied territories.
The arguments set out in this opinion will undoubtedly influence independence discourse in territories as disparate as Catalonia and Kurdistan, and the CJEU's decision, expected at the end of February, will be keenly anticipated.
The reaffirmation of the principle of permanent sovereignty over natural resources is of particular interest regarding the Kurdistan Region of Iraq, where the exploitation of natural resources has been a contentious issue for decades. Kurdistan's status as a semi-autonomous region with the right to manage its oil resources is enshrined in Iraq's 2005 Constitution, and the Region has not declared independence. Although not analogous with the Western Sahara situation, one can envisage questions being raised as to the compatibility with international law of any agreements which states may have or may enter into with the Iraqi federal government that relate in some way to resources in Kurdistan territory. It may well be argued that these too fail to respect the Kurdish people's sovereignty over their natural resources and/or their right to self-determination (as well as potentially breaching the constitutional provisions). The AG's comments as to the unconditional and precise nature of these principles paves the way for challenges before national courts on the basis that these are binding upon states, which may not enter into agreements that disregard them.
Case C-266/16 Western Sahara Campaign, Opinion of Advocate General Wathelet, 10 January 2018
The authors are grateful to Seonaid Stevenson, a trainee solicitor at Dentons, for her assistance with this piece.
Kurdistan Region of Iraq, Morocco, natural resources, permanent sovereignty, Western Sahara
Extractives companies' human rights records ranked in Benchmark study
Posted on May 22nd, 2017 By Catherine Gilfedder
Categories: Africa, Canada, Middle East, Oil and Gas, United Kingdom, United States
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Developments continue apace in human rights responsibilities for businesses. We are seeing persistent implementation of new reporting requirements across EU jurisdictions and beyond, judgments of national courts and international tribunals holding corporations to ever stricter account for their responsibilities in this area and UN negotiations continuing for a global treaty imposing binding international law obligations on businesses. Staying ahead of the field in this area is crucial.
While the responsibilities imposed by the UN Guiding Principles on Business and Human Rights (the UNGPs) are not in themselves legally binding, governments' expectations that companies will step up in this area have been made clear through National Action Plans, parliamentary enquiries and the introduction of "hard" legal requirements, such as under the Modern Slavery Act in the UK.
Now, the Corporate Human Rights Benchmark (CHRB) has ranked 98 of the largest publicly traded companies globally on 100 human rights indicators, focusing on the Extractives, Agricultural and Apparel industries. These areas were specifically selected because of the high human rights risks they carry, the extent of previous work on the issue, and global economic significance. 41 Extractives companies featured.
The CHRB is a collaboration between investors and a number of business and human rights NGOs. It has emphasised this is a pilot assessment and welcomes input on the methodology used. The study was compiled from publicly available information, with the selected companies also having the opportunity to submit information to the CHRB. Companies were given scores for the measures they are taking across six themes, grounded in the framework of the UNGPs:
Governance and policy commitments.
Embedding respect and human rights due diligence.
Remedies and grievance mechanisms.
Performance: Company human rights practices.
Performance: Responses to serious allegations.
The selected companies were then banded according to their overall percentage score. The performance-related criteria carried greater weight than the policy-based heads, with "Embedding respect and human rights due diligence" and "Company human rights practices" counting for 25% and 20% respectively.
Results skew significantly to the lower bands
There was a wide spread in the participants' performance, with a small number of clear leaders emerging. No company scored above the 60-69% band, with only three companies falling within that band. A further three scored 50-59% and 12 scored 40-49%. 48 companies fell within the 20-29% band.
Of the companies in the top band, two were in the Extractives sector; a further six Extractives companies fell within the 40-49% band; 19 scored 20-29% and five were found to trail at less than 19%.
The generally low scores across the three industries may be explained by the fact that the impact of some businesses' human rights processes may still be filtering through. We should expect that in future years the authors of the survey will adopt a more stringent approach and subject low-scoring businesses to greater criticism.
Gap between policies and performance
On the whole, companies tended to perform more strongly on policy commitments, high-level governance arrangements and the early stages of due diligence. They performed less well on actions such as tracking responses to risks, assessing the effectiveness of their actions, remedying harms and undertaking specific practices linked to key industry risks. There is often a mismatch between board level measures and their granular implementation, as well as between public responses to serious allegations and taking appropriate action.
Of the Extractives companies surveyed, only six companies scored were given a zero score for their policy commitments, whereas this was the case for 17 companies for "Embedding respect and human rights due diligence" and nine for "Company human rights practices".
On the policy side, some Extractives companies scored points for emerging practices such as regular discussion at board level of the company's human rights commitments, linking at least one board member's incentives to aspects of the human rights policy, and committing not to interfere with activities of human rights defenders, even where their campaigns target the company.
In terms of implementation, some participants explained how human rights risks are integrated into their broader risk management systems, how they monitored their commitments across their global operations and business relationships, and how they had systems in place for identifying and engaging with those potentially affected by their operations.
Companies were also scored for their practices in relation to selected human rights specific to each industry. Those in which the Extractives participants featured included freedom of association and collective bargaining, health and safety, land acquisition, water and sanitation and the rights of indigenous people.
The significant interest in the CHRB since it began its work is unsurprising given it provides an opportunity to demonstrate commitment and progress in this area vis-à-vis competitors. The pilot methodology will be refined and ultimately the CHRB will be produced on an annual basis for the top 500 companies globally. We expect it to contribute to the continued drive of companies across all sectors to proactively manage human rights risks in their own operations and through their expectations of their business partners.
Sanctions in Energy: Russia and Iran
Posted on Nov 10th, 2016 By Sona Taghiyeva
Categories: Europe, Middle East
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US and EU sanctions related to Russia and Iran have a direct and targeted impact on the energy sector. The sanctions regimes against Russia and Iran differ substantially and seem to be moving in different directions. In this article, we explore the challenges facing US and EU energy companies seeking to operate in Russia and Iran.
Brief overview of energy related sanctions against Russia
Since March 2014, the US has imposed an increasingly strict set of sanctions against Russian and Ukrainian individuals and companies. These sanctions generally fall into four categories: a list of blocked persons and entities, identified as Specially Designated Nationals, or SDNs; much more limited restrictions for specified Russian banks, oil companies and technology companies, identified as a Sectoral Sanctions Identification List or SSI List; export controls; and a full commercial embargo of Crimea. These sanctions are imposed pursuant to several Executive Orders promulgated by President Obama and the Ukraine-Related Sanctions Regulations[1]. US Persons—defined as US citizens and permanent residents, entities organized under US jurisdictions, and persons physically in the United States—must comply.
The US has designated as SDNs a number of key government and military officials (both Russian and from the former Ukrainian Government), individuals with close ties to the Russian Government, and Russian and Crimean entities[2]. US Persons are generally prohibited from transacting with any of these blocked persons, and must freeze such blocked persons' property in their possession, custody, or control. These SDNs are also banned from traveling to the US. In comparison with the SSI List, SDNs targeted inter alia leaders of the Russian oil companies.
According to SSI List and its related OFAC's Directives, the following activities by a US Person or within the United States related to oil companies are prohibited, except to the extent provided by law or unless licensed or otherwise authorized by the Office of Foreign Assets Control: the provision, exportation, or re-exportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deep-water, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in a maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to this Directive, its property, or its interests in property. The prohibition on the exportation of services includes, for example, drilling services, geophysical services, geological services, logistical services, management services, modeling capabilities, and mapping technologies[3]. The SSI List includes, among others, Russia's largest energy companies.
The US and EU sanctions are largely aligned. Like the US, the EU has also adopted sanctions that block persons, restrict financing, limit certain exports, and broadly prohibit trade with Crimea. EU persons—EU citizens and permanent residents, entities organized in EU member states and persons physically in the European Union—must comply.
While there are differences between the US and EU sanctions, these are more of a degree than of a kind. For example, the EU and US do not block an identical set of individuals and entities, but the implications for those blocked persons are the same: a visa ban (for individuals) and a freezing of all assets[4]. Notably for EU companies in the energy sector, EU sanctions prohibit the provision of loans or investment services to Crimean companies, ban exports of goods and technology and prohibit the provision of technical assistance, brokering, construction, or engineering services, in the energy sector and in the prospecting for, and exploration and production of oil, gas, and mineral resources, to any Crimean entity, or for use in Crimea. Contracts signed prior to 20 September 2014 are exempted[5].
Brief overview of energy related sanctions against Iran
On 14 July 2015, the "P5+1" working group (China, France, Germany, Russia, the UK and the US) reached a landmark agreement with the Government of Iran to adopt the Joint Comprehensive Plan of Action (the JCPOA). Under the JCPOA, the P5+1 agreed to implement broad UN, US and EU sanctions relief in exchange for Iran's ongoing compliance with a number of nuclear-related measures. This sanctions relief will occur in two phases: (1) when the International Atomic Energy Agency (the IAEA) verifies Iran's compliance with nuclear-related measures, which occurred on 16 January 2016; and (2) when the IAEA, together with the UN Security Council, confirms that Iran's nuclear materials are being used for peaceful activities, or 18 October 2023, whichever is sooner[6].
Most of the US sanctions that are suspended—both in the first and second phases—are extraterritorial, i.e., they apply to non-US Persons who do business with Iran. US companies seeking to engage the Iranian market, therefore, need to be aware of the limits of US sanctions relief under the JCPOA, namely:
1. US Persons generally remain prohibited from doing business with Iran. The JCPOA will not lift the general commercial embargo which prohibits US Persons from doing business with Iran, except for certain sales of civilian commercial aircraft to Iran, imports of Iranian-origin carpets and foodstuffs.
2. US companies' overseas subsidiaries will be licensed to transact with Iran under OFAC's General License H. The JCPOA will license overseas subsidiaries of US entities for activities consistent with the agreement. However, the licensing methodology and the definition of "overseas subsidiaries" are not described and remain to be clarified.
3. Other US sanctions including those related to counter-terrorism or human rights-related sanctions asserting extraterritorial application[7] will remain in place.
4. On 7 October 2016, OFAC issued updated guidance on several issues. The issues addressed include banking transactions with Iranian banks; dollar-denominated transactions; acceptable due diligence standards; and part-ownership of Iranian companies by entities who remain on the SDN list[8].
With regard to Iran's vast oil and gas reserves, the first phase of relief will mean the US will no longer sanction non-US Persons who engage in transactions with Iran's energy, shipping and shipbuilding sectors, or port operations[9]. Nor will the US any longer sanction non-US persons who invest in Iran's oil, gas and petrochemical sectors; purchase, sell, transport, or market oil, gas and petrochemicals from Iran; export, sell or provide refined petroleum products and petrochemical products to Iran; or otherwise transact with Iran's energy sector including Naftiran Intertrade Company, National Iranian Oil Company and National Iranian Tanker Company, and associated services[10]. Non-nuclear-related sanctions still remain in place on all companies and persons, regardless of nationality, who seek to do business with any Iranian people or entities which remain on the SDN List.
EU sanctions relief is far more expansive. Unlike the US, the EU will allow its companies to invest directly in Iran and transact with Iranian persons. EU member states have agreed to terminate or suspend all "economic and financial sanctions" against Iran[11]. As a result of the first phase of sanctions relief under the JCPOA, EU persons are permitted to trade in Iranian crude oil and petroleum products, natural gas and petrochemical products, as well as related financing. Similarly, the sale, supply or transfer of equipment and technology, as well as the provision of technical assistance and training in this sector are permitted. In addition, EU Persons are free to grant financial loans or credit and to participate in joint ventures with any Iranian persons engaged in the oil, gas and petrochemical sectors in Iran or elsewhere.
Implications for energy companies
While the US and EU have both imposed a number of sanctions on Russia that aim directly to constrain investment in Russia's energy sector—and in particular its future oil development—there are a number of reasons why Russia's energy sector may possibly continue to attract US and European investment.
To begin with, US and EU sanctions are (thus far) narrowly targeted. Unless specifically prohibited, Russia's economy, including its energy sector, is fully open to investment. Second, the sanctions against Russia could be lifted, if the situation in Eastern Ukraine and Crimea develops in certain directions. Finally, US and EU companies are more familiar with Russia and Russian business practices in comparison to Iran, a country where numerous other compliance and other business risks are encountered.
During the first phase of sanctions relief under the JCPOA, which began on 16 January 2016, EU energy companies and the overseas subsidiaries (again yet to be defined) of US energy companies will now have the opportunity to engage Iran's vastly underdeveloped energy sector. It is estimated that the country will need hundreds of billions of dollars of investment to restore its petroleum fields and then further develop them. EU and the overseas subsidiaries of US companies seeking to engage Iran should therefore be prepared to understand and implement an updated sanctions compliance program that ensures they do not inadvertently risk breach of the ongoing EU and US sanctions. These companies will need to also actively monitor Iran's compliance as determined by the IAEA and the JCPOA Committee, as a breach may trigger a mandatory wind-down and withdrawal.
The same is not true with regard to the remaining US sanctions against Iran, for example, which would require approval by the US Congress. Moreover, critically, the JCPOA provides for UN, US and EU sanctions to "snapback." This means that while many companies may now be allowed to invest in Iran, they will face the prospect of having to wind down their operations in the event that Iran is found to have breached the JCPOA[12].
"We note that other countries, including Canada, also continue to maintain sanctions against Iran that go beyond the limited sanctions imposed by the UN. To the extent there is any connection to such other countries in particular transactions, country-specific sanctions compliance advice should also be sought."
[1]31 CFR Part 589.
[2]Executive Orders of the President of the US on "Blocking Property of Certain Persons Contributing to the Situation in Ukraine," No 13660 dated 6 March, 2014 and No 13661 as of 19 March 2014 "Blocking Property of Additional Persons Contributing to the Situation in Ukraine," Section 1, 19 December 2014. As a result of blocking sanctions, all property and interests of designated persons which are within (or may come into) the possession and control of any US individual or entity (which extends to a foreign branch of a US entity) are blocked, and an entry into the US of designated persons is suspended.
[3]Directive 4 under Executive Order 13662 of the Office of Foreign Assets Control as of 12 September 2014.
[4]The Council of the European Union, giving force to its Decision 2014/145/CFSP authorizing travel restrictions and the freezing of funds and economic resources of certain individuals believed to have been responsible for actions "which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine" ("designated individuals"), adopted Council Regulation (EU) No. 269/2014 of 17 March 2014.
[5]US and EU embargo Crimea, and US adopts new Ukraine sanctions law, 29 December 2014.
[6]The second phase of sanctions relief is eight years after "Adoption Day," defined as 18 October 2015. See http://www.state.gov/secretary/remarks/2015/10/248311.htm
[7]Executive Order of the President of the US on "Blocking the Property and Suspending Entry Into the United States of Certain Persons With Respect to Grave Human Rights Abuses by the Governments of Iran and Syria via Information Technology" No. 13606 dated 22 April 2012.
[8]https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20161007_33.aspx
[9]Iran Freedom and Counter-Proliferation Act as of 2012, Section 1244(c)(1),(d).
[10]President Obama directs key US agencies to prepare for sanctions waivers under the JCPOA, 21 October 2015 and The Joint Comprehensive Plan of Action: A First Look, 17 July 2015.
[11]In the second step, on Transition Day, the EU will seek to terminate the sanctions suspended in the first step and terminate EU proliferation-related sanctions. As such, EU proliferation-related sanctions, among some other measures, will remain in place for eight years after Implementation Day.
[12]Special thanks to former Managing Associate of Dentons US LLP, Mr. Kenyon Weaver, for his contribution to this article.