Arbitration: Features and Legal Aspects as an Alternative Dispute Resolution Mechanism within International Administrative Contracts (IACs)

Abstract

The rise of technology and globalization allows developing states to contract with international corporations or foreign individuals to accomplish their development agendas in the form of public facilities and other mega-projects. IACs involve legally stipulated long-term deals between a government representative and a foreign individual or company. Such indentures are meant to develop natural resources (e.g., oil and minerals), build public infrastructures, or accomplish other governmental ends. These contracts may differ from other business agreements because the government entity has the extraordinary authority to relieve the private party of its customs duties and other regulatory requirements. Therefore, IACs entail massive investments and extraordinary terms between the government agency and the foreign contractor. The complexity of IACs defies universal descriptions. For instance, in a case involving the National Iranian Oil Company and Sapphire Petroleum Limited, the arbitrator, Judge Pierre Cavin, had to first define the scope of IACs. Cavin explained that: These arrangements occur between a local company which takes the form of a public project, and a trading company which is subject to foreign civil law. In this agreement, the performing company does not perform ordinary trade operations; instead, the company will perform massive investments and establish permanent facilities. Those agreements involve unfamiliar terms such as the taxation transaction for the involved company. Therefore, any contract between a state party and a non-state foreign entity fits the legal description of an IAC if it involves massive investments and the establishment of permanent facilities. Saudi Arabian law describes this aspect as the “administrative authority requirement.” It involves cross-border transfer of economic values in the form of huge investments or long-term public facilities. In Saudi Arabia, an IAC must involve a public good or the general welfare. If the agreement is for other purposes (e.g., contracts for the supply of ordinary goods), it qualifies as a government contract but not an administrative one. These contracts must also include other special clauses unavailable in regular contracts. For instance, administrative contracts must include a public law condition that assist in expediting the contract’s intent. The exceptional terms of IACs can be legally stipulated or non-stipulated. In Saudi Arabia., for example, these contracts usually impose penalties upon the foreign entity if they do not meet their contractual obligations on time. Thus, foreign parties must be careful when accepting offers in such contracts, especially when they are not regulated by any legal provisions. Some government agencies may want to offer contracts that are not guided by law or attempt to manipulate the law for their own malicious intentions.