LEGAL AND REGULATORY ENV.

OF BUSINESS

CASE BRIEF
Reko Diq

Submitted by: Adnan Ul Haq

ERP ID: 18508

Submitted to : Miss Mahreen Nazar

 Reko Diq - Case Brief

During 1993, BHP minerals, an American company entered into a joint venture known as Chagai Hills
Exploration Join Venture Agreement (CHEVJA) with Balochistan Development Authority (BDA) to
explore the Reko Diq area. This area is located in the Chagai District of Balochistan, Pakistan and is
known to be the world’s fifth largest gold mine containing vast amount of copper and gold reserves.
Under the terms of clauses and articles, BHP and BDA will share the revenue 75:25 and any disputes
arising will be referred for arbitration to International Centre for Settlement of Investment Disputes
(ICSID). After the signing of the contract, many amendments were made in CHEVJA favoring the mining
the companies which included substitution and addition of the new parties and relaxation in the
Balochistan Mining Concession Rules (BMCR) 1970 for ease of exploration. The rules were relaxed as
per BHP’s request to Government of Balochistan. On 4th march 2000, BDA was replaced by the
Government of Balochistan which allowed the addition of new parties to the contract. As a result
Tethyan Copper Company was formed due to exploration alliance with BHP and it had separate legal
personality, distinct from its parent company. The Balochistan Minerals Rule of 2002 was promulgated
in order to aid in further explorations and it allowed TCC to apply for new licenses for explorations. In
2006 TCC was officially granted 75% on interest in the project via Novation Agreement and the
petitions were filed before the Balochistan High Court which challenged the validity of CHEVJA and the
subsequent agreements. The balochistan high court considered the relaxation of rules and acts of
respondents as legal hence advocating CHEVJA to be valid. The petitions were then filed before
Supreme Court challenging that the license granted to TCC were on the basis of being non transparent
and unfair as the national laws that safeguarded Pakistani and Balochistan citizens were violated.

The petitioners argued that the agreements were illegal and the process of gaining mineral rights and
relaxations was corrupted and did not give proof of “individual hardship”. Moreover the TCC was not
registered in Pakistan and the Novation Agreement was illegal as it did not advertise for call of tenders.
The respondents, TCC and other mining companies, claimed that CHEVJA was created through
democratic process and executed by Governor of Balochistan. The company stated that BMCR 1970
allowed the Balochistan Government to relax any rules and these facilitate the mining operations for
the benefit of Pakistan. Moreover the Novation Agreement was transfer of rights so public bidding was
not necessary.

The three member bench of the Supreme Court after examining the records and clauses, held the
relaxations granted as unlawful and the contract as void ab initio. This was due to the fact that mining
companies were not registered in Pakistan and according to rule of 98 BMCR 1970 relaxations must be
granted on “individual hardship” basis which the respondents failed to show thus all the relaxations
were ulta vires i.e beyond the scope of law. Aggrieved by the decision of Supreme Court the foreign
parties referred the dispute to International Centre for Settlement of Investment Disputes (ICSID) for
arbitration which ruled in the favor of TCC by deciding on its own merit and not abiding by Supreme
Court Verdict which held Pakistan liable for breach of bilateral agreement and damage to respondents.