By Chidimma .I. Onyiaorah
The story of the $9.6 billion award against Nigerian Government has been all over the news. Many controversies have trailed this decision.
On the 16th day August, 2019, an English Court sitting in England granted leave to Process and Industrial Developments Limited, (which had entered into an agreement with Nigeria in a ‘Gas Supply and Processing Agreement (GSPA), executed on the 11th day of January, 2010)’, to enforce the arbitral award held in its favour against Nigeria, the sum which has cumulatively risen to $9.6 billion as at the time of the English Court’s Judgment of the 16th day of August, 2019, inclusive of the accruing interests. The accruing interest daily is 7% of the arbitral award, which is about $1.2 million daily.
Under the agreement, Nigeria was to make certain arrangements for the agreed supply of Wet Gas, including building the necessary pipelines to enable P&ID Ltd to process the wet gas by removing natural gas liquids and return approximately 85% of it to the government in the form of lean gas. This lean gas was to be returned at no cost to the Nigerian government.
Nigeria failed to do this for three years. In March 2013, P&ID treated this failure by Nigeria as a repudiation of the agreement and commenced arbitration in London. Nigeria unsuccessfully sought to resist P&ID’s application and enforcement of the Final Award, contending amongst other reasons, that Nigerian law was the governing law and the seat of arbitration was not England but Nigeria.
This brings us to the critical question: what then is a Seat of Arbitration?
Clause 20 of the GSPA states: ‘The venue of the arbitration shall be London, England or otherwise as agreed by the Parties.”
The strength of the seat theory is that it gives an established legal framework to an international arbitration, so that instead of ‘floating in the transnational firmament, unconnected with any municipal system of law, the arbitration is firmly anchored in a given legal system. Just as the law of contracts helps to ensure that contracts are performed as they should be and not mere social engagements, so the law of the Seat of Arbitration helps to ensure that the arbitral process works as it should. The necessity for such support for the arbitral process is, of course, reflected in the Model Law, which allows for certain functions such as the appointment of arbitrators where there is a vacancy and for certain sanctions such as the setting aside of an award to be exercised by the courts of the place of arbitration.
Similarly, a critical issue in any international arbitration is the location of the arbitral seat. The location of the legal seat can have profound legal and practical consequences and can materially alter the course of the dispute resolution. In an English judicial decision of the Court of Appeal, it was said: “in international commercial arbitration the place or seat of arbitration is always of paramount importance”.
Much more significant than convenience and cost is the effect of the law of the arbitral seat, and particularly the arbitration legislation of the arbitral seat, on the arbitration. In most legal systems, the arbitration legislation of a state is territorial in scope, regulating arbitrations that have their seat within the territory of the state and not other arbitrations. The arbitration legislation of the arbitral seat governs a number of matters relating to arbitral proceedings such as judicial supervision of the proceedings by the courts of the arbitral seat, arbitrators’ competence, selection of arbitrators, extent of challenge of an award and setting aside or enforcement of award.
Better expression and provision should have been made to ensure that the juridical seat was also stated and included within clause 20 of the GSPA. This is important because, “venue” is generally understood to refer to geographic or physical location where the arbitral hearing or proceedings may be held- this is not necessarily synonymous with the seat or place of arbitration.
Attention to detail requires that so called pathological arbitration clauses are avoided because in practical reality, parties are unlikely to agree much about anything once they are in dispute.
With the above in mind as well as the facts of this case, it is clear that the arbitral Tribunal had decided the seat of the arbitration was London, England.
It is noteworthy to know that the Nigerian Government has secured “Stay of Execution” from the UK Commercial Court in order to proceeded to challenge the Court’s recognition of the tribunal’s decision in the UK Court of Appeal. Nigeria has however been ordered to deposit USD200 million in the courts account within 60 days pending its appeal and also pay P & ID the sum of USD250 million within 14 days.
I hope this will be an eye opener to parties in drafting standard dispute resolution clauses in contract agreements to avoid ambiguities on the one hand and to Nigeria on the need to use every mechanism to domesticate arbitration in Nigeria and reduce significantly, the number of home generated disputes exported outside Nigeria.
The Dispute resolution center of Abuja Chamber of Commerce as part of its efforts to contribute to improving the Nigerian economy and the overall development of the country convened a stakeholder workshop in May 2019, in collaboration with relevant Government Ministries and Government Agencies, Contractors, ADR experts and other interested Persons to look into the problems of the increasing rate of disputes that arise from Government contracts.
A communiqué was issued at the end of the workshop, which among other important points highlighted the significance of having Legal advisers of MDAs to not only ensure that proper ADR clauses are included in Government contracts but also to ensure the domestication of disputes that arise from Government contracts in Nigeria. We have the state-of-the-art facilities in Nigeria, in centers such as the Dispute Resolution Center of Abuja Chamber of Commerce and Industry, The International Center for Arbitration and Mediation (ICAMA) Abuja, Lagos Court of International Arbitration, Multi-door Court houses annexed to various States High Courts and many more to handle such cases efficiently and effectively.
Why continue to expose our economy to risks such as the P&ID experience?