As Pakistan faces an ICSID award for damages for its 2011 decision to deny a mining lease for

the Reko Diq project to Tethyan Copper Company Pty Limited, Amber Darr (Coventry) explains
how the real issue for Pakistan is not just the colossal damages they may have to pay, but to
accept responsibility for what appears to have been a crisis of governance.”

On 12th July 2019, an international arbitration tribunal of the World Bank’s Centre for
Settlement of Investment Disputes (‘ICSID’), awarded damages in the sum of $5.84 billion to
Tethyan Copper Company Pty Limited (‘TCC’)  following Pakistan’s 2011 denial of a mining
lease to TCC for the Reko Diq project. Although the rationale for the decision has not been made
public, the damages award, which is as large as the IMF loan package recently approved for
Pakistan, appears to have sent shock waves throughout the country: the Pakistani press has
termed the outcome ‘a fiasco’, social media users have clamoured for ‘accountability’, and the
Pakistani Prime Minister, Imran Khan, has issued orders for the formation of a commission to
investigate and fix responsibility for the penalty.

Why the outrage?

Petitions in relation to TCC and Reko Diq had been first filed in Pakistani courts as early as
2007. By 2012, when the Supreme Court of Pakistan started hearing the matter, it had before it at
least eight civil, criminal and human rights petitions as well as related applications which
challenged the Reko Diq project on issues ranging from the legality of TCC’s mining lease, the
circumstances in which it had been granted, to its legal and human rights implications. The
Supreme Court hearings were conducted in open court in the presence of the Pakistani media.
Such was the publicity generated by the hearings that by the end of 2012, the remote and
unknown region of Reko Diq had become a household name.

The federal and Balochistan governments, as respondents in the multiple matters being heard by
the Supreme Court, were aware of the arbitration clause in the agreement between TCC and the
Balochistan government. They were also aware that TCC’s investment was governed by 
Pakistan’s Bilateral Investment Treaty with Australia (BIT Australia)  and that TCC had already
brought a case before ICSID under BIT Australia and named Pakistan as the respondent in the
proceedings. However, despite analysts hinting at future legal complications, the federal as well
as the Balochistan governments not only submitted to the Supreme Court’s jurisdiction but also
celebrated the Supreme Court’s decision to cancel TCC’s mining license, as a testament to
Pakistan’s autonomy and sovereignty.

Pakistan was also aware of its substantive and procedural obligations as a signatory to BIT
Australia and to the ICSID Convention. Prior to Reko Diq, Pakistan had been a party to at least
four arbitrations before ICSID each of which also involved a BIT. These included the 2001 SGS
v.  Pakistan (BIT Switzerland), the 2003 Bayinder v.  Pakistan (BIT Turkey) and Impreglio v.
Pakistan (BIT Italy),  and the 2013 Karkey Karadeniz v. Pakistan (also BIT Turkey). Of these,
two were settled (SGS and Impreglio), one was decided in favour of Pakistan (Bayinder) and
another in favour of the investor (Karkey Karadeniz). Against this background, Pakistan’s
outrage regarding Reko Diq is surprising. This blog aims to understand Pakistan’s perspective in
the Reko Diq dispute by examining the Supreme Court’s decision in this regard.
The History of the Reko Diq dispute 

Reko Diq, located in the Chagai district in Pakistan’s Balochistan province, is famous for its vast
gold and copper reserves and allegedly the world’s fifth largest goldmine. In 1993, BHP
Minerals Intermediate Exploration Inc. (BHP), an American company, entered into a Joint
Venture Agreement (the 1993 agreement) with Balochistan Development Authority (BDA) to
explore the Reko Diq area. In terms of Clause 3.4 of the 1993 agreement, BHP and BDA agreed
to share revenue in the ratio of 75:25, and in terms of Article 15, they agreed to refer any
disputes arising under the 1993 agreement for arbitration to ICSID or if ICSID refused to accept
jurisdiction, to the ICC. In 2000, the Balochistan government ratified the 1993 agreement as well
as all actions already taken in pursuance of the 1993 agreement (the 2000 agreement).

In 2006, the Australian joint venture TCC entered into a Novation agreement with the
Balochistan government (the 2006 agreement), whereby TCC replaced BHP as a party to the
1993 and 2000 agreements. In doing so, TCC acquired BHP’s rights to explore the Reko Diq
area, agreed to share revenue with the Balochistan government in the ratio of 75:25, and to refer
any future disputes between TCC and the Balochistan government to ICSID or ICC for
arbitration. Soon after the 2006 agreement, the 1993 agreement was challenged before the
Balochistan High Court on the ground inter alia that the Balochistan government had acted
illegally in relaxing the relevant rules and granting mineral titles for Reko Diq to BHP. By its
order dated 26th June 2007, the Balochistan High Court dismissed the petition.

Aggrieved by the orders of the Balochistan High Court, the petitioners and several others filed
petitions before the Supreme Court, challenging the licence(s) granted to BHP/TCC on the
grounds of absence of fairness, non-transparency, violation of laws, and risks to the vital
interests of Balochistan and Pakistan. The three member bench of the Supreme Court comprising
former Chief Justice Iftikhar Muhammad Chaudhary, Justice Azmat Saeed and Justice Gulzar
Ahmed, held in its detailed order that the 1993 agreement was contrary to law and public policy
and, therefore, the 1993 agreement and the 2000 and 2006 agreements derived from it, were
void. In a single stroke, the Pakistan Supreme Court dismantled the legal superstructure
governing the exploration of Reko Diq in Pakistan to the detriment of TCC.

The Balochistan government and the cancellation of the mining lease

The Balochistan government had entered into the 2000 agreement after duly negotiating its terms
and with the approval of the Balochistan Chief Minister. By 2012, however, when the case was
being heard by the Supreme Court, the Balochistan government, through its counsel Mr. Ahmer
Bilal Soofi suggested that BHP had exercised undue influence first on BDA and then on the
Balochistan government to convince them to sign the 1993 and 2000 agreements (para 15); that
the 2000 agreement ratifying the 1993 agreement by the then Governor and Chief Minister of
Balochistan was illegal and, therefore, void (para 16);  and that TCC itself had drafted the rules
that were to govern its mining operations in Reko Diq (para 48).

In this manner the Balochistan government distanced itself completely from the 1993 agreement
and rendered full assistance to the Supreme Court (para 63). Furthermore, the Balochistan
government denied its ICSID obligations as well as Pakistan’s commitments under BIT Australia
which was applicable by virtue of TCC being an Australian venture. It argued that the 1993
agreement was void under Pakistani contract law, and could not be ratified (para 67); that the
Balochistan as well as the federal governments were not parties to the 1993, 2000 or 2006 
agreements (para 69); that Pakistan was not liable before ICSID in its capacity as a party to the
agreements but only voluntarily through its commitments under BIT Australia (para 109); and
that in bringing a case before ICSID, despite the Court’s ‘benevolence’ towards it, TCC had
disrespected the Supreme Court (para 111).

Not the first time

Not only the Pakistan government but also the Supreme Court has considerable experience of
international arbitration agreements.  Two Supreme Court decisions are particularly significant in
this regard: the HUBCO decision (HUBCO v. Pakistan WAPDA PLD 2000 SC 841) and the SGS
decision (Societe Generale de Surveillance S.A. v. Pakistan 2002 SCMR 1694). In the HUBCO
decision, the Supreme Court, recognised the validity of the ICC arbitration agreement, but
decided that the dispute between the parties was not capable of being referred to arbitration due
to allegations of fraud and corruption. In the SGS decision, however, the Supreme Court
restrained SGS from proceeding with the ICSID arbitration on the grounds inter alia, that ICSID
did not have jurisdiction over the matter in dispute, and that by submitting to the jurisdiction of
the Pakistani courts, SGS had waived its right to ICSID arbitration.

The HUBCO decision, appears to bear a strong resemblance to the Reko Diq decision, because
both discuss contracts procured through corruption and bribery. The Supreme Court’s stated
position in this regard, summarised in a talk given by Justice Umar Bandial, is that matters
involving questions of criminality or public policy cannot be referred to arbitration and have to
be adjudicated by a court of law. However, the two decisions are different because unlike
HUBCO, the Reko Diq dispute is not merely a contractual dispute between the Balochistan
government and TCC but also falls within the ambit of BIT Australia in terms of which the
federal government has agreed to promote and protect investments made by Australian investors
(art.3), desist from expropriating or nationalising these investments (art.7), and resolve disputes
through international arbitration before ICSID (arts. 12 &. 13).

The issue before the Supreme Court, therefore, as much one of Pakistan’s obligations under BIT
Australia and international law as it was that of criminality under Pakistani law. BHP made this
point before the Supreme Court and urged it to exercise judicial restraint (para 60).   However,
the Balochistan government framed the issue entirely as contractual rather than an international
investment dispute under BIT Australia and termed the 1993 agreement a ‘surrender document’
(para 61). The Supreme Court’s decision in this regard is also premised primarily on contract law
(para 88) and suggests that the Supreme Court’s understanding of Pakistan’s liability under a
private international contract (for which TCC had commenced arbitration under the ICC Rules)
(para 98) is conflated with its public international obligations under BIT Australia for which
TCC had brought the case before ICSID (para 99).

What next?
The ICSID award has not yet been made public and, therefore, the tribunal’s findings in respect
of the role played by the different parties to the Reko Diq dispute are not available for scrutiny.
In the absence of the rationale of the decision, it is difficult to comment on the motivations and
choices of the parties leading up to the dispute and the manner in which it was handled before the
Supreme Court and then before ICSID. However, a review of ICSID’s 2017 decision on
jurisdiction and liability provides important insight. It suggests that ICSID found that TCC held
assets in Pakistan are protected by BIT Australia (despite Pakistan’s assertions that TCC’s
investment was contrary to the law) and that BIT Australia’s cover could not be retroactively
revoked by a Supreme Court decision. ICSID also did not give credence to Pakistan’s allegations
of corruption on TCC’s part.

ICSID also found that BDA was empowered to exercise governmental authority and, therefore,
the 1993 agreement as much as the 2000 and 2006 agreements derived from it, were to be treated
as agreements between Pakistan and the TCC, the Australian investor. Finally, ICSID held that
the Pakistani authorities (including BDA and Balochistan government) had created legitimate
expectations that TCC would be granted a mining license upon meeting routine requirements.
ICSID was not convinced by the reasons provided by Pakistan for denying the license to TCC
and came to the conclusion that the relevant authorities had breached TCC’s legitimate
expectations to camouflage ‘the state’s real motive of pursuing its own project at the site’.

In view of the preceding, the most pressing issue before Pakistan is not merely determining the
quantum of damages that it may have to pay to TCC in pursuance of the ICSID award. Indeed,
news reports suggest that Pakistan’s dispute with TCC is headed towards a negotiated settlement:
TCC has offered it and Pakistan has welcomed it. The real issue for Pakistan is to recognise that
cases such as Reko Diq raise significant public interest issues and must be addressed with the
utmost legal transparency and with an understanding of Pakistan’s obligations in matters
involving BITs and international investment arbitration. An even greater challenge for Pakistan
is to accept responsibility for what appears to have been a crisis of governance and to devise a
co-ordinated strategy for dealing with international investment in the future.

Impregilo v. Pakistan (II) 2003

Details of investment
Rights under a concession agreement through a joint venture company for the construction of
hydroelectric power facilities in Pakistan, known as the Ghazi-Barotha Hydropower project.
Summary of the dispute
Claims arising out of the Pakistan Water and Power Development Authority's (WAPDA) failure
to turn over the land necessary to implement certain construction contract, among other acts and
omissions of WAPDA that allegedly impeded the investor's ability to proceed according to
schedule.

2003 Bayindir v. Pakistan Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of
Pakistan
Details of investment
Highway construction contract to build a six-lane motorway entered into with an agency of the
Pakistani government.
Summary of the dispute
Claims arising out of the implementation of a construction contract concluded between the
National Highway Authority of Pakistan and the investors.
Decided in favour of State

2013 Karkey Karadeniz v. Pakistan Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic
of Pakistan
Details of investment
Rights under a contract concluded with a State-owned electricity company to provide four
power-generating vessels to the port of Karachi.
Summary of the dispute
Claims arising out of the alleged unlawful detention by the Government of four electricity-
generating vessels owned by the claimant, as well as alleged breaches of contractual payment
obligations for electricity generated.
Decided in favour of investor

1: Aerial Incident of 10 August 1999 (Pakistan v. India)

General act of 1928

Pakistan member of commonwealth

No jurisdiction of court

2: Obligations concerning Negotiations relating to Cessation of the Nuclear Arms Race and to Nuclear
Disarmament (Marshall Islands v. Pakistan)

9 states

India, Pakistan, uk article 36

No jurisdiction

3:Trial of Pakistani Prisoners of War (Pakistan v. India)

In May 1973, Pakistan instituted proceedings against India concerning 195 Pakistani prisoners of war
whom, according to Pakistan, India proposed to hand over to Bangladesh, which was said to intend
trying them for acts of genocide and crimes against humanity. India stated that there was no legal basis
for the Court’s jurisdiction in the matter and that Pakistan’s Application was without legal effect.
Pakistan having also filed a Request for the indication of provisional measures, the Court held public
sittings to hear observations on this subject; India was not represented at the hearings. In July 1973,
Pakistan asked the Court to postpone further consideration of its Request in order to facilitate the
negotiations which were due to begin. Before any written pleadings had been filed, Pakistan informed
the Court that negotiations had taken place, and requested the Court to record discontinuance of the
proceedings. Accordingly, the case was removed from the List by an Order of 15 December 1973.

4: Appeal Relating to the Jurisdiction of the ICAO Council (India v. Pakistan)

In February 1971, following an incident involving the diversion to Pakistan of an Indian aircraft, India
suspended overflights of its territory by Pakistan civil aircraft. Pakistan took the view that this action was
in breach of the 1944 Convention on International Civil Aviation and the International Air Services
Transit Agreement and complained to the Council of the International Civil Aviation Organization. India
raised preliminary objections to the jurisdiction of the Council, but these were rejected and India
appealed to the Court. During the written and oral proceedings, Pakistan contended, inter alia , that the
Court was not competent to hear the appeal. In its Judgment of 18 August 1972, the Court found that it
was competent to hear the appeal of India. It further decided that the ICAO Council was competent to
deal with both the Application and the Complaint of which it had been seised by Pakistan, and
accordingly dismissed the appeal laid before it by the Government of India.

5: Jadhav (India v. Pakistan)