Business Times

Deutsche Bank has no claim over Sri Lankan Government in oil hedging issue

By Bandula Sirimanna

In the backdrop of the country’s triumph in the Citibank oil hedging arbitration, Sri Lanka says there is no case in the Deutsche Bank oil hedging claim and believes it would also be annulled by the Singapore 3-member Tribunal on the grounds that the lawsuit was bad in law as the plaintiff has made its submissions misrepresenting facts, Attorney General’s Department sources said.

The case was taken up for hearing on jurisdiction and merits before the Singapore tribunal on August 25 and its proceedings continued till September 5. The AG’s Department’s objections were on the grounds that the agreement was between the Ceylon Petroleum Corporation (CPC) and the Deutsche Bank and not with the government.

The Deutsche Bank contractual obligation between the CPC and the bank was being made out as a breach by the government by the plaintiff and this was not so because the CPC as defined by an Act of Parliament, was a separate institution.

The bank was trying to make out its agreement was with the state to prove its argument that the government of Sri Lanka has violated the German-Sri Lanka bilateral investment treaty (BIT), a senior officer of the AG’s Department told the Business Times, explaining the submissions made before the Tribumal. “There is absolutely no case because the government did not enter into any agreement with the Deutsche Bank,” he added.

Deutsche Bank’s claim was brought under the Germany-Sri Lanka BIT signed on 7 February 2000 by which Germany and Sri Lanka are committed to offer certain protections to investors of the other state. These protections include the obligation to afford such investments fair and equitable treatment and full protection and security, not to expropriate investments without proper compensation, and to observe other obligations entered into by the state with investors. Sri Lanka argued that the International Centre for Settlement of Investment Disputes (ICSID) Convention contains an autonomous and higher standard for ‘investment’ which is not satisfied in this case, he pointed out.

Nihal Sri Amarasekera, Chartered Accountant and anti corruption activist told the Business Times that the Deutsche Bank case should fail as the hedging agreement doesn’t constitute a protected ‘investment’ for the purposes of the Germany-Sri Lanka BIT. “It was an ordinary commercial transaction; hedging agreements should not be considered an ‘investment’, ”he said.

However he noted that spending a vast sum of money amounting to around Rs.400 million for foreign law firms and lawyers to argue oil hedging cases in favour of Sri Lanka at international tribunals cannot be justified. The AGs Department along with attorneys James Crawford, Ali Malek, James MacDonald and Simon Olleson, London appeared for the respondents Sri Lankan government and the CPC while Allen & Overy, Hong Kong, China; London, UK; and Singapore, Julius & Creasy, and Nigel Hatch, Colombo represented Deutsche Bank.

CPC has been fighting the hedging deal since late 2008, after oil prices collapsed off record highs and the island was left owing money to five commercial banks. Sri Lanka's Treasury was exposed to around US $464 million in claims from Citibank, StandardChartered, Deutsche Bank, Commercial Bank and the People’s Bank.

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