Lex Petrolea in International Arbitration—a Very English Dissent

‘Soft’ lex petrolea refers to theories or concepts which merely amount to a recognition or identification of readily accepted elements of petroleum law.¹⁰ This category includes the theory extended by Kim Talus, Scott Looper and Steven Otillar which define lex petrolea as the standardization and international dissemination of industry practices which has resulted in host government and model petroleum contracts to share common clauses or provisions of a similar effect.¹¹ Timothy Martin’s secondary theorem of lex petrolea as, ‘the application of international law to the petroleum sector’, would similarly be categorized hereunder.¹² The author shares Daintith’s concerns that classifying such concepts under the label of lex petrolea is unproductive and causes confusion.¹³ The author is apprehensive as to whether further analysis of ‘soft’ lex petrolea provides any contribution towards enriching the scholarship concerning the resolution of petroleum disputes.

More relevant to the scholarship is the concept of ‘hard’ lex petrolea. De Jesús depicts lex petrolea as the autonomous legal order of the transnational petroleum society.¹⁴ He perceives lex petrolea as a system of law, the rules of which are binding on the transnational petroleum industry.¹⁵ This model is based on rules of lex mercatoria which De Jesús defines as the ‘autonomous legal order of the business community’.¹⁶ Professor Berthold Goldman, a founding father of lex mercatoria, defines it as, ‘a set of general principles, and customary rules spontaneously referred to or elaborated in the framework of international trade, without reference to a particular national system of law’.¹⁷ De Jesús accredits Professor Ahmed Sadek El-Kosheri as having conceived the concept of lex petrolea during his lecture at The Hague Academy of International Law.¹⁸ El-Kosheri’s approach is influenced by the seminal theses of Professors Goldman, Philippe Kahn and Philippe Fouchard whom during the 1960s conceived the legal philosophy (dubbed the ‘École de Dijon’) behind lex mercatoria.¹⁹ Professor El-Kosheri, appearing as counsel on behalf of the Government of the State of Kuwait, presented his theory in the AMINOIL arbitration.²⁰ He endeavoured to persuade the tribunal to recognize, ‘a customary rule valid for the oil industry—a lex petrolea that was in some sort a particular branch of a general universal lex mercatoria.’²¹ The tribunal promptly refused to acknowledge the existence of such a principle.²²

In 1998, Doak Bishop expanded on Professor El-Kosheri’s seminal scholarship by surveying 10 published petroleum-related arbitration awards. He concluded that from these awards new rules and principles had emerged, which once matured and fully coalesced, would be aptly capable of instructing, regulating and governing the international petroleum industry.²³ His survey was expanded in 2011 by Thomas Childs. Childs discussed the substantive rulings contained in all published petroleum related arbitral awards since 1998.²⁴ He concluded that these awards had created, ‘a “lex petrolea” or customary law comprising legal rules adapted to the industry’s nature and specificities’.²⁵ However, in a more recent publication discussing lex petrolea (in 2018), Childs appears to have abandoned his previous thesis, and now concedes that published arbitral awards do not create binding rules on the petroleum industry.²⁶

Pursuant to the scholarship of De Jesús, there are three distinguishing features of lex petrolea. First, it is entirely autonomous from other national and international legal orders.²⁷ Its rules have binding effect on the petroleum society.²⁸ Parties to petroleum contracts may agree to apply the rules of lex petrolea to govern the resolution of their disputes (arbitrators may also elect to rely on lex petrolea where no choice of law is made or parties expressly grant the arbitrator the discretion to determine the applicable substantive law to their dispute).²⁹ Secondly, it has supremacy in relation to, or over other legal systems or orders.³⁰ The arbitrator possesses a heteronomous power to disregard any agreed choice of law by the parties and instead apply the rules of lex petrolea.³¹ Thirdly, rules of the society are further developed, created and enforced through ‘arbitral jurisprudence’.³²

Turning to the first bar. For a system of law to be deemed autonomous, it must accommodate its own system of implementation and adjudication through independent dispute resolution institutions.³⁴ This is reflected in Herbert Lionel Adolphus Hart’s essentialist theory of a legal system.³⁵ The medieval Law of the Merchant (the distant ancestor of the modern lex mercatoria) was an independent system of law subject to its own institutions of adjudication.³⁶ Certainly, no one in the 21st century would recognize the old Law of the Merchant as a surviving independent system. Its independent identity started to dissipate in the decades leading up to and throughout the 1700s.³⁷ Scholars report that although, on occasion, disputes requiring the application of elements of the old Law of the Merchant continued to be adjudicated by special mercantile juries,³⁸ these trials were now conducted under the auspices of the King’s courts,³⁹ and presided over by qualified judges.⁴⁰ Thus, the Law of the Merchant was eventually incorporated into the wider common law of England.⁴¹ No such institutions exist in relation to lex petrolea, instead lex petrolea relies on international arbitration as an entirely independent third-party mechanism for its adjudication.⁴² International tribunals have no inherent authority to adjudicate a dispute. They may only legitimately hear and rule on the dispute if the relevant parties consent to their jurisdictions.⁴³ Moreover, enforcement and legal recognition of arbitral awards are dependent on national and international legislation.⁴⁴ In England, it is...