Rules for interpreting a production sharing agreements

The interpretation of a production sharing agreement should not be chaotic, taken out of context, but should comply with the general rules of interpretation applicable to investment agreements.

Recall that the rules for interpreting production sharing agreements are governed by the rules of interpretation codified in Articles 31–33 of the Vienna Convention on the Law of Treaties.

A production sharing agreement shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the agreement in their context and having regard to its object and purpose.

Article 31 of the Vienna Convention on the Law of Treaties contains four elements of interpretation: good faith, ascertaining the ordinary meaning of the words in the agreement, the context, and the object and purpose of the investment agreement.

These elements are described in detail below:

1) Good faith. Although rarely mentioned in case law, is described as interpreting a treaty in a way that «conforms to the standards of honesty, loyalty and fair dealing» in international conduct, does not result in «gross manipulation», the wording of the contract or did not use ambiguity in the wording to advance an interpretation that could not be the interpretation of the parties;

2) clarifying the ordinary meaning of words in a production sharing agreement includes its preamble and annexes, and with (ii) the definition;

3) the context should not be confused with the «circumstances of the conclusion» of the contract, which refers, for example, to the «political and economic background».

4) the object and purpose of the investment agreement. The object and purpose of the treaty serve to shed light on the ordinary meaning of the terms to be interpreted. «Object and purpose» is usually interpreted as a single phrase, not as a separation of «object» and «purpose», and tribunals are usually wary of using it to achieve a meaning that is contrary to the plain meaning of the text.

The main reason for referring to the context in interpreting a contract (agreement) is to confirm the ordinary meaning given to the terms of the contract or to determine such meaning in cases of doubt.

Theoretically, there is no hierarchy in the application of these four elements, the interpretation focuses on the text of the contract (i.e. the starting point) rather than the intentions of the parties or, as the tribunal put it in Methanex v. United States, the text of the contract «is considered to be the authentic expression of the intentions of the parties».

Having become a party to a production-sharing agreement, participating States retain the right to modify the substantive or procedural aspects of the provisions of the production-sharing agreements.

«The authentic interpretation of a treaty remains the exclusive prerogative of the contracting States themselves, which may interpret the treaty expressly or implicitly by subsequent conduct» (Canadian Cattlement v. United States, (UNCITRAL) NAFTA, Jurisdiction, 28 January 2008).

Authentic interpretation does not change the content of the production sharing agreement and aims to:

1) clarify its meaning, thereby increasing the consistency, coherence and predictability of the interpretation of the agreement;

2) eliminate uncertainties and ambiguities.

The authentic interpretation may actually be a veiled amendment to the production sharing agreement that cannot be retroactive at the expense of foreign investors.

We consider it necessary to supplement the rules for interpreting production sharing agreements with the following paragraph.

The use of the separating conjunction «or» indicates a distinction: one concept from several concepts. When we say: «A or B», using the separating conjunction, we can mean «A and not B», and we can mean «B and not A».