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In the Name of Allah OIL AND GAS LAW

By: Dr S N Ebrahimi
LLB, LLM, PHD International law

Imam Sadiq University

snebrahimi@yahoo.com

a l l r i g h t s a r e r e s e r v e d

Overview of the Topics


3. LEGAL AND CONTRACTUAL ASPECTS OF OIL AND GAS CONTRACTS

D r S e y e d N a s r o l l a h

General Liability

Case study

Termination Force majeour Applicable law Dispute Settlement Others Buy-Back Production Sharing

Contractual v. legal Civil liability v. criminal liability

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D r S e y e d

The Political and Legal Environment

N a s r o l l a h

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Introduction
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1. No single, uniform international commercial law governing foreign business transactions exists

2. International marketers must comply with the laws of each country within which it operate

D r S e y e d N a s r o l l a h

3. The legal systems of different countries are so disparate and complex

4. Best to get expert legal advice when doing business in another country
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The Political and Legal Environment


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Learning Objectives: Understand the home country political and legal environment Understand the host country political and legal environment Adapting to different political and legal systems International politics and law

D r S e y e d N a s r o l l a h

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Home and Host Country Political Environments


The Uncontrollable

D r S e y e d N a s r o l l a h

Sovereignty of nations and nationalism Stability of government policy Political risks in global business Confiscation Expropriation Domestication Embargoes, Boycotts and Sanctions Violence
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Economic and Commercial risks


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Exchange controls Import restrictions Local-content laws

D r S e y e d N a s r o l l a h

Price controls Labor problems Tax controls Commercial risks


Assessment of potential political risks Politically sensitive products

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Reducing political vulnerability


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Good corporate citizenship Managing citizen affairs Understand the differences in political ideologies Strategies to lessen political risks
Joint venture Expanding the investment base (Local financial partner)

D r S e y e d N a s r o l l a h

Marketing and distribution Licensing Planned domestication (Greater local participation) Use risk reduction through adequate insurance
Political payoffs (U.S. Foreign corrupt practices act)
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Strategies to reduce commercial risks


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Joint venture Investment base expansion Marketing and distribution Licensing Planned domestication (Greater local participation) Other

D r S e y e d N a s r o l l a h

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Role of Government in Encouraging Global Trade


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Trade liberalization Attract FDI Create and promote free trade zones

D r S e y e d

Open up the market for foreign products Promote transfer of technology N a Tax holidays for FDI s r Special incentives for importation of State of the art o l technologies l Provide market information and incentives for local companies to a h seek foreign markets
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Host or encourage trade missions Promote competitiveness of target industries Provide/Invest in necessary business infrastructure development snebrahimi@yahoo.com Imam Sadiq University 1385

Home and Host Country Legal Environment


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Bases for legal systems Common law (British/English) Code law (Roman law) Islamic law Socialist law Legal dispute situations Between governments Between companies and governments

D r S e y e d N a s r o l l a h

Between companies

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Determination of legal jurisdiction


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Jurisdictional clauses included in contract Location of contract agreement Location of contract performance International dispute resolution Conciliation of mediation

D r S e y e d N a s r o l l a h

Arbitration
Arbitration centers Arbitration clauses

Enforcement of Arbitration
Litigation
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Commercial law within Countries/Regions


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Marketing laws Green marketing legislation Antitrust laws European Union Treaty of Rome Articles 92, 93, 37 (Government/States) Articles 85-86 (Private Companies)

D r S e y e d N a s r o l l a h

Articles 222 and 90 (Public enterprises)

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The Legal and Contractual Framework and Terminologies

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The Legal and Contractual Framework and Terminologies


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D r S e y e d N a s r o l l a h

Engineering and finance people should have a proper understanding of of legal and contractual aspects of law, e.g: International Sale Contracts Intellectual Property Employment Law Construction Contract Product Liability (Breach, Negligence, Fraud) Dispute Resolution
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The Legal and Contractual Framework and Terminologies


Contractual and Legal Considerations
Preparing Contracts For Services Interpreting Contracts once Project is Underway Managing To Minimize Personal and Organizational Liability Anticipating or Preparing For Expert Witness Testimony Being Aware of Local, and International Rules and Regulations

D r S e y e d N a s r o l l a h

Being Aware of Additional Resources Funding (Domestic and Foreign)


Being Aware of Pending or Recent Legislations

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Breach
Fraud Liability equity

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Violation of right, Duty or Law


Intentionally deceitful practice Being bound or obligated according to law or

Negligence Breaches duty below the appropriate standard of care Tort crime Similar to wrong distinguished from a

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The Legal and Contractual Framework and Terminologies

D r S e y e d N a s r o l l a h

Issues Affecting Ability to Trade and Operate Oil and Gas Offshore Contracts differences between legal systems question of which laws will apply in disputes rules of competition patent registration extra-territoriality of overseas legislation product liability

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The Legal and Contractual Framework and Terminologies


General Contract Terms Those clauses of a contract which are not negotiated. These clauses, often in fine print, may or may not be read and may or may not be comprehended or comprehensible. Thus courts may, at their discretion, set them aside if manifest injustice results under a theory of unconscionability.
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D r S e y e d N a s r o l l a h

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Capacity The law presumes that the parties to a contract have the requisite contractual capacity to enter into the contract. Certain persons do not have this capacity:

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Minors Insane persons Intoxicated persons


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Freedom of Contract and Legality

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"Freedom of contract" within limitations prescribed by the law. Breaching these limitations causes the contract to be null and void. Partially void if it concerns only some of the provisions and the void provisions are not essential for the contractual relationship. Contracts against the law are void.

Objective impossibility makes a contract void. "Freedom of form" but if the law prescribes a specific form, observing it is a condition for validity.

Against mandatory provisions Illegal subject matter Fraud against the law Contracts against public morals limitations to restriction of personal rights Extent of restraints of trade

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The Legal and Contractual Framework and Terminologies Written Instruments all legal transactions to establish, transfer, convert, renew, state, or release a right must be proved by a written instrument. Necessary written form Simple written form Official form

D r S e y e d N a s r o l l a h

Registration Publication

Public notary Land registry official

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Illegality One requirement to have an enforceable contract is that the object of the contract must be lawful. Contracts with an illegal object are void and therefore unenforceable. There are two key categories of illegality:

D r S e y e d N a s r o l l a h

Since illegal contracts are void, the parties cannot sue for nonperformance. The court will generally refuse to enforce or rescind an illegal contract. The court will generally leave the parties where it finds them

Contracts contrary to statutes Contracts contrary to public policy

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D r S e y e d N a s r o l l a h

Necessary Legal Implications of International Sales Contracts Defining key terms (eg. Incoterms 2000 which are the standard trade definitions most commonly used in international contracts) limiting agreement to the contract describing the goods contents of the payment clause the retain property until payment clause trade terms (shipping terms, as with Incoterms 2000) force majeure dispute resolution applicable law and jurisdiction fees and charges - including what you are responsible for and what your buyer is responsible for

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Force Majeure: Force majeure as a concept does exist in the common law but is limited to man made disasters. In French law however force majeure encompasses all unforseeable disasters whether man made or not. Unforseeability is the key element to the exclusion of liability which may arise via force majeure.
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D r S e y e d N a s r o l l a h

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Act of God An unforseeable natural disaster which cannot be prevented. Where the injury is uniquely due to an act of God it is a defense against liability. Acts of God will not however excuse delays in fulfilling contractual commitments because the duties assumed are negotiated including the responsibility for losses resulting from natural disaster. Thus if the duty of the party is in tort acts of God will excuse their liability. But if the duty of the person is in contract then the contractor must have included a clause covering acts of God even though the misfortune was unforseeable and could not have been prevented. Most insurance contracts include clauses to exclude liability of the insuror for acts of God.
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Act of God

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A latin maxim applie: Actus Doi nomini facit injuriam: An act of God does wrong to no one thus no one is responsible in tort for the result of an inevitable accident.
Acts of God can be distinguished in the common law from force majeure: Acts of god are natural disasters whereas force majeure, at least in the common law, consists of man made disasters.
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Organisational Duty The liability of a corporation is the same as that of a natural person. However the corporations shareholders unlike its board of directors and employees will only be liable for the torts of the corporation to the extent of their investment. Like any employer a corporation can be held liable for torts to its employees which occur at the workplace according to the vicarious liability imposed by the principle of respondeat superior
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Unconscionability

D r S e y e d N a s r o l l a h

Some lawful contracts are so oppressive or manifestly unfair that they are unjust. To prevent the enforcement of such contracts, the courts have developed the equitable doctrine of unconscionability. A contract found to be unconscionable under this doctrine is called an unconscionable contract, or a contract of adhesion. Elements that must be shown to prove that a contract or clause is unconscionable: The parties possessed severely unequal bargaining power. The dominant party unreasonably used its unequal bargaining power. The adhering party had no reasonable alternative

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Immunity Exemption from legal duties. In so far as torts are concerned, immunities may be classified according to their extent, being absolute or qualified, or their object, being governments or persons.

D r S e y e d N a s r o l l a h

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TYPES OF IMMUNITIES: Absolute Immunity Absolute immunity is unconditional immunity from all personal civil liability, e.g. diplomatic immunity. Charitable Immunity Immunity from civil liability and particularly as regards negligent torts that is granted to a charitable or nonprofit organization such as a hospital.

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Corporate Immunity Immunity from liability in tort granted to an officer of a corporation who acted in good faith within the scope of their duties. Discretionary Immunity Qualified immunity from civil liability for tortious acts or omissions that arise from a government employee's discretionary acts performed as part of their duties
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Executive Immunity Immunity granted to officers of the executive branch of government from personal liability for tortious acts or omissions done pursuant to their duties. E.g. the US president's executive immunity is absolute, the immunity of other federal executive officials is qualified.
Judicial Immunity Absolute immunity from liability that is granted to judges and court officers such as grand juries and prosecutors and for tortious acts or omissions done within the scope of their jurisdiction or authority.
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Legislative Immunity Absolute immunity from liability that is granted to legislators for tortious acts or omissions done in the course of legislative activities.
Official Immunity Discretionary immunity from personal liability that is granted to public officers for tortious acts and omissions
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Governmental immunity The principle of the common law is that the king can do no wrong that is that there be no remedy against the sovereign because of sovereign immunity unless the sovereign waive that immunity.

D r S e y e d N a s r o l l a h

A principle precluding the institution of a suit against the government without its consent.
Governmental immunity exempts the government from liability for its torts. It is referred to as either governmental immunity or as soveriegn immunity. The terms are synonymous.
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Enterprise liability Liability of a business either for the onthe-job injuries of its employees or for the collective liability of an entire industrial sector where it is clear that that sector had produced a defective product but where the specific manufacturer cannot be identified.
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Monetary Damages Monetary damages are the ordinarily presumed remedy in the common law. They seek to compensate the injury of the plaintiff via a determination of the cash equivalent of the loss to the defendant, the interest thereon, and the pain and suffering suffered by the defendant. They must be distinguished from real restitution.
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Nominal damages An award to a plaintiff of a symbolic sum to fullfil the satisfaction interest of the injured plaintiff; Purely symbolic damages awarded to remedy an injury to a plaintiff where no damages occur.

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The objective of nominal damages is to provide emotional satisfaction to the plaintiff.


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notice of termination A written or verbal notice given by one Party versus other to end a Contract employment. Also known as "notice of discharge".

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Possession Possession is the fact of occupation or use of an object without regard to the legal right to do so. Thus possession is either rightful or wrongful.

D r S e y e d N a s r o l l a h

Rightful possession is one of the rights of property, namely the right of use or usus. The right of property consists in the absolute and exclusive control of the object and includes the rights of usus, use, abusus, abuse, and fructus, fruits, that is all that grows thereon. Possession is the right of usus i.e. to enjoy and dispose of an object or right.
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Quasi-Contract A quasi-contract is the legal act of a person, by which he obligates himself towards another without any agreement between them. For example, a physician who treats an unconscious patient at the scene of an accident will have an action in quasicontract for the cost of her services.
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Remedies It is a maxim of law that for every wrong there is a remedy. Remedies are those legal aids that may be invoked by plaintiffs to cure the injuries done to them by defendants. There are a variety of remedies:

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The remedies which most concern tort and contract law are money damages, injunction, and specific performance.

monetary damages, injunctions, specific performance, and replevin among others such as writs of mandamus and habeas corpus.

Common law prefers money damages and does not ordinarily award specific performance.

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Civil Liability Liability in tort for negligent, reckless, or imputed liability due to strict negligence. Liability not on the bases of private contract or other promise but because of social relations.

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Tort A tort is a violation of a legal duty resulting in damages to the plaintiff. Delict is a synonymous though rarely used in English despite the fact that it is the term for tort both in French (dlit) and in German (Delikt).

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Unjust enrichment Unjust enrichment occurs where a defendant has wrongfully profited at plaintiffs expense. There would clearly be a remedy at equity for unjust enrichment. Statutes may also fashion legal remedies. The court regards the unjust enrichment as held in constructive trust by the defendant. To prove unjust enrichment plaintiff must show a deprivation of their property corresponding to an enrichment, that is an augmentation in the plaintiffs wealth without however any legal reason for that enrichment.
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Warranty A promise, whether express or implied, that a good shall be free of defect. Thus cases of products liabilities may be founded on a theory of warranty as well, either as an independent or alternative theory of liability.

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Implied warranty. A warranty which the law imputes to the contracting parties based not on the express terms of the contract but on the conduct and circumstances which give rise to implicit assurances of protection and usefulness of the product. Implied warranties may be a foundational or alternative theory to products liability claims
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Burden Of Proof

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The burden of proof is the duty of one party in a lawsuit to prove the point which they assert. Ordinarily the movant bears the burden of proof, expressed in the maxim "actor incombit probari".
Different levels of proof are required depending on the type of case. In a civil case the plaintiff must prove the elements of their claim by a "preponderance of evidence" i.e. that their assertion is more likely than not true. In a criminal trial the burden of proof required of the prosecutor is to prove the guilt of the accused "beyond a reasonable doubt," a much more difficult task.

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Capacity Legal capacity is the ability of a person, whether natural or artificial, to perform civil acts . This concept is in fact somewhat confused because the notion of legal existence is confounded with the notion of capacity to alienate. Legal capacity is divided into two concepts: legal personality and legal capacity. While all legal persons enjoy rights and bear duties, only persons possessing legal capacity can voluntarily acquire or alienate rights and duties.

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Duress Overwhelming force which compels a defendant to act or fail to act to the injury of another. Though that act or omission would normally constitute a tort, here it may not if the defendant can prove that their conduct was justified because of duress.
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Causation The notion that one event leads to another. Law distinguishes between remote causes which while necessary were not sufficient and material causes i.e. necessary and sufficient causes. Those causes but for which the accident would not have occurred are necessary but not always sufficient. When a cause is both necessary (legal causation, i.e. sine qua non causation) and proximate, i.e. sufficient, that is legal causation, then a tort will exist in common law.
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Defective Product Where a product is defective the products manufacturer can be implicated in tort on a theory of strict liability.

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A product is in a defective condition, i.e. is unreasonably dangerous to the user, when it has a propensity or tendency for causing physical harm beyond that which would be contemplated by the ordinary user. A defective condition is a legal cause of injury if it directly produces the injury. A defective condition may be a legal cause of damage even though it operates in combination with the act of another, or some other natural cause.
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D r S e y e d N a s r o l l a h

Thus, in cases involving defective or unreasonably dangerous products the manufacturer may be liable even though it exercised all reasonable care in the design, manufacture and sale of the product in question. Manufacturers are not on always liable for accidents resulting from misuse of their products. The manufacturer is not an insurer. The mere possibility that injury result from the use of a product is insufficient to impute liability to a manufacturer. Manufacturer is required to make a product free of defective and unreasonably dangerous conditions.
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Due Care / Standard of Care The care that an ordinarily reasonable and prudent person would use under the same or similar circumstances.

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Proving the failure to exercise due care toward a person who one has a legal duty resulting in injury to that person establishes a prima facie tort. Due care is one of the standards of care in tort.
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Fault The entire system of negligent torts, with the exception of strict liability, is predicated on the notion of some fault, i.e. the absence of the care of a reasonably prudent person. Fault can be defined as negligence or the failure to perform a legal duty.
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The Legal and Contractual Framework and Terminologies

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DEFAULT: The failure to fulfill a legal obligation, such as neglecting to pay back a loan on schedule. DUTY TO WARN: The legal obligation to warn people of a danger. Typically, manufacturers of hazardous products have a duty to warn customers of a product's potential dangers and to advise users of any precautions they should take.
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Negligence The failure to meet the duties of social obligation, general judged by the standard of a reasonably prudent person. GROSS NEGLIGENCE: Failure to use even the slightest amount of care in a way that shows recklessness or willful disregard for the safety of others.
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The Legal and Contractual Framework and Terminologies


Disclaimer / Waiver Ordinarily a tort will imply a remedy for every right there is a remedy. However a plaintiff may have waived their right, either expressly or implicitly. Where that waiver was knowing, (i.e. appreciating the risks and dangers) intelligent and voluntary (absence of coercion) that plaintiff will not be able to recover for they have accepted the risk and thus the damage. To avoid tort liability manufacturers and merchants will often include disclaimer clauses in their sales contracts. However these clauses may or may not be declared void as against public policy.
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ARBITRATION: A method of alternative dispute resolution in which the disputing parties agree to abide by the decision of an arbitrator. ASSIGNMENT: The transfer of legal rights, such as the time left on a lease, from one person to another.
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GOOD FAITH/BONA FIDE: Honestly and without deception. An agreement might be declared invalid if one of the parties entered with the intention of defrauding the other. BAD FAITH: Dishonesty or fraud in a transaction, such as entering into an agreement with no intention of ever living up to its terms, or knowingly misrepresenting the quality of something that is being bought or sold.
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BANKRUPTCY: Insolvency; a process governed by the company law to help when people cannot or will not pay their debts.

COMPANY BY-LAWS: A corporation's rules and regulations. They typically specify the number and respective duties of directors and officers and govern how the business is run.

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COLLATERAL: An asset that a borrower agrees to give up if he or she fails to repay a loan. CONFLICT OF INTEREST: Refers to a situation when someone, such as a lawyer or public official, has competing professional or personal obligations or personal or financial interests that would make it difficult to fulfill his duties fairly.
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The Legal and Contractual Framework and Terminologies

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FIDUCIARY DUTY: An obligation to act in the best interest of another party. For instance, a corporation's board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust's beneficiaries, and an attorney has a fiduciary duty to a client.

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JURISDICTION: A court's authority to rule on the questions of law at issue in a dispute, typically determined by geographic location and type of case. LIEN: A claim against someone's property. A lien is instituted in order to secure payment from the property owner in the event that the property is sold. A mortgage is a common lien.
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LIQUIDATED DAMAGES: The amount of money specified in a contract to be awarded in the event that the agreement is violated.

MALPRACTICE: Improper or negligent behavior by a professional, such as a doctor or a lawyer. The failure of a professional to follow the accepted standards of practice of his or her profession.
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The Legal and Contractual Framework and Terminologies


Representation Entering into a legal transaction in the name of another person.

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Representative

Principal
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The Legal and Contractual Framework and Terminologies


Liability Liability is the legal obligation of a person to be held responsable for the injury to another whether that injury is contractual (breach of contract) or tortious (negligence, strict liability, intentional tort).

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Liability is defined as being bound or obligated according to the law.
Strict Liability - Liability even when there is no proof of negligence. Often applicable in product liability cases against manufacturers, who are legally responsible for injuries caused by defects in their products, even if they were not negligent. Many Opportunities to Incur It

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Breach

Negligence
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Fraud

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The Legal and Contractual Framework and Terminologies


There are two general theories in product liability: Negligence

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Strict Liability in Tort


Strict Liability in Tort: Manufacturing defects Design defects Failure to warn The law defines failure to warn as the problem in two situations: Foreseeable risks could have been protected by instructions or warnings The warnings themselves, when followed caused the injuries.
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Liability: Minimizing It
Insurance: Financial Protection Preventive practices Incorporate Practice Limit Practice to Safer Disciplines Incorporate High-Risk Services and Areas Separate Maintain Currency and Competence Use Standard Contract Forms Utilize Tested Legal Language Develop, Maintain, and Use Written Guidelines Document Everything Supplement Written Documentation Accept Primary Responsibility fir Use of Computer Programs and Models
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The Legal and Contractual Framework and Terminologies


Liability: Minimizing It
Preventive practices Separate Facts and Opinions Hire Only Insured Sub-Consultants Respond In A timely Fashion Limit Project Comments to Knowledgeable Persons Avoid Financial Interest in Project Use Peer Review Do It Right The First Time Sign Reports In Corporate Name Only Communicate With Those You Serve Place Liability-Limiting Provision in Contracts
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The Legal and Contractual Framework and Terminologies Application


Strict liability is a tort theory of recovery based on the alleged carelessness of the defendant's behavior. False or True? Negligence is the theory of liability based on careless behavior while strict liability focuses on liability without fault due to the extreme danger of the behavior engaged in (transporting cases of dynamite).

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The primary purpose of tort law is to undo injury to someone through the mechanism of compensatory money damages.
False or True ? The goal of this area of law is to try to make an injured party "whole" again by providing money damages to cover all the costs (pain and suffering, lost salary, medical expenses, property damage, etc.) attributable to the injury causing behavior of the defendant.
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D r S e y e d

BUY-BACK V. PSC

N a s r o l l a h

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Main Elements of Irans BuyBack


1) Objective Government Sovereignty and Control over Natural Resources Access to Foreign Funds Keeping its Market Share Access to Advanced Technology and Know-How

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2) Awarding Procedure Tender Requirement Approval of High Economic Council Awarding Contracts to Foreign Companies Local Content Requirement

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3) Contents Title to Assets Financing Project Inspection, Audit and Verification Contractors Reimbursement Control by the State Local Employment and Training Safety, Health and Environment Assignment of Contract Dispute Settlement
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ii) Key Differences between Buy-Back and PS 1) Scope of Work

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Development v. Exploration, Development and Production Exploration and Development v. Exploration, Development and Production

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2) Cost Recovery 3) Contractors Profit

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Remuneration Fee v. Production Sharing

4) Contractors Risks versus Contractors Incentives 5) Tax Implications

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