Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited ("Bapex") and Bangladesh Oil Gas and Mineral Corporation ("Petrobangla")
ICSID · Investment (ICSID and treaty) · Bangladesh · 28 Feb 2020
Why it matters
This ICSID decision clarifies the liability of an operator for blowouts under a joint venture agreement, distinguishing between direct and consequential damages. It also addresses the binding effect of contractual limitation clauses on assignors (government entities) and the exclusivity of ICSID jurisdiction over related domestic court claims. The case is a rare example of an investment tribunal deciding operational liability for a gas well blowout.
Summary
Niko Resources (Bangladesh) Ltd., a Barbadian company, entered into a Joint Venture Agreement (JVA) with BAPEX (a Bangladeshi state-owned company) to develop marginal gas fields. During drilling of the Chattak 2 well on 7 January 2005, a blowout occurred due to Niko's failure to properly design the well and manage shallow gas. A relief well (Chattak 2A) was drilled but also blew out on 24 June 2005. The Government of Bangladesh and Petrobangla sued Niko in Bangladeshi courts for damages. Niko initiated ICSID arbitration seeking a declaration of non-liability or limitation of damages. The tribunal found Niko liable for the first blowout due to breaches of its obligations as operator under the JVA, including inadequate well design and failure to follow industry standards (API RP 59 and 64). However, the second blowout was not caused by Niko's breach. The tribunal held that Niko must compensate BAPEX for direct losses (escaped gas) but not consequential damages (lost profits, lost production) as excluded by Article 27.2 of the JVA. The decision also ruled that the limitation of liability applies to claims by the Government and Petrobangla as assignors. Quantum of damages was reserved for a later phase.
The detail
Parties: Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited ("Bapex") and Bangladesh Oil Gas and Mineral Corporation ("Petrobangla")
Case number: ICSID Case No. ARB/10/18
Outcome: Niko was found liable for the first blowout (Chattak 2) but not for the second blowout (Chattak 2A). Niko must compensate BAPEX for direct loss and damage caused by the first blowout, including escaped gas. Quantum reserved for later phase.
Applicable law: Joint Venture Agreement (JVA) between Niko and BAPEX, Bangladesh Contract Act 1872 (Section 73), ICSID Convention
Issues in play: The JVA's limitation of liability clause (Article 27.2) excluding consequential damages collided with claims for lost gas and production. The tribunal distinguished direct losses (escaped gas) from consequential losses, applying Section 73 of the Contract Act.
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