A Few Necessary Explanations For The Outcome Of The Arbitration Dispute With Frontera

28 May, 2020
Georgian Oil and Gas Corporation (GOGC) and the Georgian State Agency of Oil and Gas (SAOG) call on Frontera Resources Georgia Corporation (FRGC) to refrain from unscrupulous actions, disseminating misinformation around the actual outcomes of the arbitration proceedings, and hence politicizing the legal dispute. In addition, Frontera must respect the award of the Arbitral Tribunal—the dispute resolution institute agreed by the parties—and ensure its enforcement. In order to protect society and interested parties from misunderstandings, or misleading information, we call on Frontera to consent to the revocation of the status of confidential document for the arbitral award and consequently to its disclosure.

As a consequence of the fact that Frontera refuses to disclose the arbitral award so far, and since Georgian side refrains from unilateral action, we will limit ourselves with just brief information around the main postulates of the award in order to protect the state’s investment image and to satisfy the interested parties: The Arbitral Tribunal supported legal position of the Georgian side and satisfied a vast majority of the claims made by GOGC and SAOG. Particularly, the Arbitral Tribunal ruled that FRGC committed material breach of the PSC, which is a ground for terminating the contract. As a result, FRGC must reimburse GOGC with approximately 6 million USD for mineral resources usage tax and for legal expenses resulting from the arbitration proceedings.

It is essential and regrettable, that instead of immediate award enforcement, Frontera launched a misleading and State image damaging information campaign that involved basically misinforming US Congress members, friends of Georgia, who relied on the information provided by the company, and were fairly outraged by the actions of an ally like Georgia infringing on the interests of an American company. This reaction would have been understandable if the information provided by Frontera had not been false.

It is unfortunate that Frontera acts as an unscrupulous business entity. However, it is doubly unfortunate and extremely harmful that its dishonesty damages the partnership between Georgia and the United States, as well as hinders Georgia’s vital process of rapprochement with European Union and NATO and sabotages the State’s foreign policy. The Georgian side once again calls on Frontera to respect the April 17, 2020 award of the United Nations-backed Hague Permanent Arbitration Court and consent to its disclosure.

Information Regarding Frontera
FRGC is a Cayman Islands shell company, contractor that committed material breach of PSC thereof, refusing to pay its Georgians workers. The company is facing a number of lawsuits in the US and Cayman Islands. FRGC withholds its consent to disclosure of the April 17, 2020 arbitral award rendered by the arbitration tribunal in the dispute initiated in Hague Permanent Court of Arbitration based on the UN-sponsored arbitration rules (UNCITRAL) opting, instead concealing its loss in the arbitration by patently false interpretations and unsubstantiated allegations. In 2019, Frontera Resources Corporation, an ultimate parent company of FRGC through its another Cayman Island subsidiary, Frontera Resources Caucasus Corporation, was delisted from the London Stock Exchange’s AIM market.

Background on Contractual Dispute and Arbitration
On January 15, 2018 GOGC and SAOG commenced arbitration proceedings against FRGC by filing a request for arbitration with the Hague Permanent Court of Arbitration with respect to a dispute arising out of breach by FRGC of its obligations under the PSC. The PSC provides for disputes to be resolved in accordance with the parties’ agreement before a neutral forum under the UN-sponsored arbitration rules (UNCITRAL). This dispute resolution mechanism is a fundamental tenant of the rule of law.

On April 17, 2020, the Arbitration Tribunal rendered its final award. It ruled unanimously that Frontera had committed a material breach of the PSC and ordered FRGC and Frontera Resources US LLC (a codefendant in the proceedings) to pay to the claimants the amount of mineral usage tax and vast majority of the costs incurred by the claimants in connection with the arbitration, which equals to approximately US $6 million in total.

From the beginning of the proceeding, GOGC committed to honor and respect any award rendered by the Arbitral Tribunal, and to refrain from unilaterally exercising rights under the PSC pending the final arbitration award. Moreover, the original PSC had a 10-year exploration period that was extended twice to a total of 20 years, which expired in November 2017, thus triggering FRGC’s obligations to relinquish the exploration territories located outside the existing Exploitation/Development Area. The allegations as if SAOG and GOGC were eager to take control of these exploration territories are thus nonsensical.