Abu Dhabi Oil & Gas Update: Investment Protection

by Pillsbury Winthrop Shaw Pittman LLP

[authors: Stephan E. Becker, Christopher D. Gunson]

The United Arab Emirates and the Emirate of Abu Dhabi do not have any domestic laws to protect foreign investors from nationalization or expropriation, but the UAE is a signatory on a number of bilateral investment treaties and international conventions. Investment protection and legal recourse are important factors to consider when reviewing any investment opportunity. Governing law and dispute resolution provisions in oil and gas sector agreements have developed over time.

Governing Law
The original Abu Dhabi oil exploration concessions of 1939 and 1953 were granted at a time when the Emirate of Abu Dhabi was a protectorate of Great Britain. At that time there was very little written law in Abu Dhabi that could be used to interpret or govern the concessions, and the documents were silent with regards to governing law. The concessions did contain a provision that prohibited the Ruler of Abu Dhabi from cancelling the concession by any legislation or administrative measures.

From the late 1960s through the early 1980s, new concessions and other agreements signed between Abu Dhabi and international oil companies typically contained a two-pronged provision regarding applicable law. First, the provision set out that the agreements independently carried the force of law (in Abu Dhabi). Second, the agreement was to be interpreted and applied in conformity with “general principles of law” as normally recognized by civilized states – an approach international oil companies may pursue when contracting for work in a developing state that does not have an established body of law. (There are often political sensitivities about using a “foreign” governing law in agreements for the development of sovereign natural resources.)

In recent years, agreements with Abu Dhabi sovereign institutions such as ADNOC been governed by the laws of the United Arab Emirates, often following with the line of “as they are applied and interpreted in the Emirate of Abu Dhabi.” This is a reflection of the development of UAE law, such as the passing of the UAE Civil Transactions Law in 1985 and the Commercial Transactions Law in 1996 and an increase in confidence among international contractors in the fairness of the UAE legal environment. Of course, it also reflects the stronger negotiating position of Abu Dhabi.

Even so, UAE courts do not recognize the doctrine of binding precedent for UAE court rulings, and consequently, there remains a lack of established rules on contract interpretation. Because Abu Dhabi’s oil and gas institutions are unlikely to accept a foreign governing law in the core agreements regarding the Emirate’s resources, any company seeking to do business in Abu Dhabi’s oil and gas sector must likely accept local governing law. Even so, the uncertainty of UAE law is an issue to be discussed, and a risk to be evaluated, when planning business in Abu Dhabi’s oil and gas sector. This uncertainty should be considered, as it will impact how an agreement is drafted and negotiated, and how certain terms are defined.

Dispute Resolution by Arbitration
In line with international norms, oil concessions and gas project contracts signed in Abu Dhabi have been subject to dispute resolution by arbitration. Historically, contracts have provided for dispute resolution by international arbitration in an overseas neutral city such as London or Paris. Most recently, some contracts with ADNOC have called for domestic arbitration in the Abu Dhabi Commercial Conciliation and Arbitration Centre (“ADCCAC”), part of the Abu Dhabi Chamber of Commerce. ADCCAC is the preferred forum of arbitration for many Abu Dhabi institutions.

A foreign arbitration award will likely be enforceable in UAE courts because the UAE became a signatory state of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) in 2006. Importantly, in recent cases, UAE courts have enforced international arbitration awards.

However, domestic arbitration awards have in the past faced challenges for enforcement in UAE courts due to arguably insignificant procedural errors, reflecting the local courts’ view that domestic arbitration decisions that effectively carry the binding power of a court judgment should follow domestic civil procedural requirements. Although recent cases regarding the enforcement of international arbitration awards suggest that the UAE courts may be changing their approach to such matters, it remains prudent to ensure that domestic arbitrations that take place in the UAE follow local procedural rules to the maximum extent possible.

In this regard, consideration should also be given to whether an arbitration award can be enforced against assets of the other party outside of the UAE. As one example, the courts of the United States favor enforcement of arbitration awards in the absence of gross procedural errors or proven arbitrator bias.

Bilateral Investment Treaties

The UAE has concluded bilateral investment treaties (BITs) with a number of countries including the United Kingdom, France, Switzerland and certain other European countries, as well as with such countries as China, Malaysia, and Morocco. Most such agreements provide for investors to be able to initiate an international arbitration against a host government seeking monetary damages for harm caused by violation of the international obligations of the treaty. Those obligations typically involve commitments (i) to provide national treatment (i.e., non-discriminatory treatment) to investors, (ii) not to expropriate or nationalize investments without payment of appropriate compensation, and (iii) to accord “fair and equitable treatment” to investors.

A simple breach of contract by a sovereign entity generally does not constitute a violation of an investment treaty. However, when a breach is coupled with arbitrary treatment and lack of recourse, investors have sometimes been successful in convincing arbitration panels to award damages.

In some situations, the potential risk of investment treaty arbitration can help influence a government to enter into negotiations, or otherwise be more flexible than it would otherwise, without the need to initiate an arbitration procedure.

Many investment treaties provide for arbitrations to be administered under the rules of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID”). The UAE became a member of the ICSID in 1982.

It is important to note that each bilateral investment treaty is different, and that the scope of issues subject to international arbitration, as well as the procedural requirements for initiation of an arbitration, can vary in critical ways.

Investors sometimes make a conscious decision to structure their investments through a corporate vehicle domiciled in a country that has an investment treaty with the host country, with the idea of enhancing their potential remedies in the event that a dispute arises. As with other types of litigation, investment arbitration is not a panacea and the availability of such arbitration certainly should not be treated as a key factor in making an investment. Nonetheless, especially for large and long-term investments, advance planning to ensure that investment arbitration is an option is a legitimate component of risk management.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Winthrop Shaw Pittman LLP | Attorney Advertising

Written by:

Pillsbury Winthrop Shaw Pittman LLP

Pillsbury Winthrop Shaw Pittman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.