Sonatrach’s long-running arbitration against Tunisian-controlled Medex just concluded with Sonatrach being awarded the staggering amount of $1,569,359,664.38 and DZA 2,320,699,249.16 ($17 million).
In 2002, Sonatrach (Algeria’s national oil and gas company and one of the largest players in Africa) entered into two exploration and production sharing agreements with Medex Petroleum North Africa LDT (a BVI corporation) in relation to two blocks located in the Algerian desert (Bouharet Nord, and Erg Issouane). Gas had already been discovered on these blocks, the issue was to develop them. Medex had very little oil and gas expertise, but it did invest close to $ 250 million during the first years of the project. The 2008 crisis hit and Medex defaulted, so it sought to sell its participating interest. In the meantime, the development of the gas fields was brought to a halt because Medex could no longer finance its part and was blocking all decisions at the operational level.
Sonatrach needed to regain control over the fields urgently in order to sell the gas. Because governing Algerian law does not authorize an aggrieved party to terminate an agreement unilaterally where, as here, the contract contained no provision to that effect, Quinn Emanuel had to convince the Arbitral Tribunal to order termination.
Prior to arbitration, ICC mediation was mandatory. Quinn Emanuel commenced ICC mediation at the end of 2014 but discontinued it after four months because it was going nowhere and then started arbitration.
The Arbitral Tribunal confirmed that it had jurisdiction almost immediately but, more importantly, accepted Quinn Emanuel’s request to bifurcate the issue of termination from any quantum issue. That was a major procedural victory because quantum, which was very complex, would have delayed the decision considerably.
Medex challenged the jurisdictional decision before the Swiss Federal Tribunal. The Federal Tribunal used this case to render its landmark decision on multi-tier resolution clauses, holding that pre-arbitral steps were mandatory, but, in a typically Swiss pragmatic fashion, it also held that the remedy was not to annul the arbitration ab initio but merely to suspend the arbitration pending the completion of the pre-arbitral steps. As a result, the arbitration was suspended for one month only and resumed afterwards.
In 2016, the Tribunal declared that the agreements were annulled ab initio as a result of Medex’s breaches. This was another major victory. The blocks were released and Sonatrach began the process of re-obtaining them from ALNAFT (the authority that awards blocks in Algeria). It did so and, at the end of 2018, it concluded a new agreement with Total to develop the Erg Issouane block.
In the meantime, Quinn Emanuel pursed the quantum phase which progressed like a roller-coaster, not least because of the Total deal that led the experts on both sides to issue completely new reports in the course of the quantum phase. Interestingly, Medex took the view that it was claimant in the quantum phase, and claimed in excess of $2 billion from Sonatrach.
Medex lost once again and Sonatrach has now received a $1.5 billion+ final award.