Significance of Seat or Place of Arbitration: P&ID Ltd v Nigeria

September 9, 2019
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Following the controversies that trailed the award of S9.billion against Nigeria by a British Court, London-based Nigerian lawyer and arbitrator Mr. Momoh Kadiri examines the  implications of arbitration in the matter and the consequences of the judgment on Nigeria.

Introduction

In Process & Industrial Developments Limited v Federal Republic of Nigeria [2019] EWHC 2241 (Comm), following a contested hearing on 14 June 2019, on 16 August 2019, Mr Justice Butcher, sitting in the High Court of Justice, Queen’s Bench Division, Commercial Court in London, gave judgment and granted the Claimant’s application pursuant to section 66 Arbitration Act 1996.

The Claimant, Process & Industrial Development Limited (“P&ID”), had applied, inter alia, for an order enforcing a Final Arbitration Award dated 31 January 2017 in the same manner as a judgment of the English Court to the same effect.

It is noted that about USD$ 9.6 billion is the amount now stated to be due as payable to the Claimant. The Defendant, the Federal Republic of Nigeria (“FRN”), unsuccessfully sought to resist P&ID’s application, contending that amongst other reasons, as Nigerian law was the governing law, the seat of arbitration was not England but Nigeria.

The FRN sought to resist enforcement of the Final Award on widespread reasons but this article will focus on the most notable issue – what is the seat or place of the arbitration?

The facts

The Final Award that resulted in the judgment was made in arbitration proceedings relating to a dispute between P&ID and the FRN arising out of a Gas Supply and Processing Agreement (the “GSPA”).

This agreement, dated January 11, 2010, was entered into between P&ID and the FRN, acting by its Ministry of Petroleum Resources (“the Ministry”).

By an arbitral Final Award dated January 31, 2017, made by a tribunal consisting of Sir Anthony Evans, Chief Bayo Ojo SAN, and Lord Hoffmann (“the Tribunal”), P&ID was awarded US$6,597,000,000. The majority was comprised of Sir Anthony Evans and Lord Hoffmann, with Chief Bayo Ojo SAN dissenting.

The dispute

 By 2012, a dispute had arisen in relation to the GSPA.

P&ID contended that the FRN had failed to make available natural gas (“Wet Gas”) in accordance with the GSPA. On 22 August 2012, P&ID served its Notice of Arbitration.

The arbitration commenced thereafter with the appointment of the arbitral Tribunal.

Whereas the parties’ legal representatives expended some considerable time in correspondence, arguing over the seat of arbitration, it is however plain that the arbitral Tribunal had already on two separate occasions made unanimous Part Final Awards: on  July 3, 2014 – dealing with its own jurisdiction and some other procedural matters; and on  July 17, 2015 – dealing with liability (the Liability Award) wherein it was unequivocally and unanimously stated by the arbitral Tribunal that the seat of the arbitration was London. Both the Part Final Award as well as the Liability Award stated, at the end: “Place of arbitration: London, United Kingdom”.

FRN’s application to Nigerian and English Courts

On  February 24, 2016, the Ministry of Petroleum Resources of the FRN commenced proceedings in the Federal High Court (Lagos Division) in Nigeria, seeking the Court’s ‘supervisory jurisdiction’ in relation to the Liability Award, stating that the seat of the arbitration was Nigeria.

It is noted this followed after the FRN had unsuccessfully applied to the Commercial Court in London for leave for extension of time and to appeal the Part Final Award under section 68 of the Arbitration Act 1996.

The request for extension of time and permission to appeal was dismissed by the Court on February10, 2016, by Phillips J. on the basis that no justifiable reasons had been given to excuse the application being made out of time.

Salient part of the GSPA

Under the terms of the GSPA between the parties: (i)   The FRN was to supply Wet Gas at no cost to P&ID, via a government pipeline, to the site of P&ID’s production facility.

P&ID was to construct and operate the facility necessary to process the Wet Gas by removing the natural gas liquids (“NGLs”) contained within it, and to return to the FRN lean gas suitable for use in power generation or other purposes, at no cost to the FRN.

P&ID was to be entitled to the NGLs stripped from the Wet Gas.

The GSPA was to run for 20 years from the date of first regular supply of Wet Gas by the FRN.

The arbitration agreement

Clause 20 of the GSPA provided, in part, as follows: “The Agreement shall be governed by, and construed in accordance with the laws of the Federal Republic of Nigeria

The Parties agree that if any difference or dispute arises between them concerning the interpretation or performance of this Agreement and if they fail to settle such difference or dispute amicably, then a Party may serve on the other a notice of arbitration under the rules of the Nigerian Arbitration and Conciliation Act (Cap A18 LFN 2004) which, except as otherwise provided herein, shall apply to any dispute between such Parties under this Agreement. Within thirty (30) days of the notice of arbitration being issued by the initiating Party, the Parties shall each appoint an arbitrator and the arbitrators thus appointed by the Parties shall within fifteen (15) days from the date the last arbitrator was appointed, appoint a third arbitrator to complete the tribunal. …

The arbitration award shall be final and binding upon the Parties. The award shall be delivered within two months after the appointment of the third arbitrator or within such extended period as may be agreed by the parties. The costs of the arbitration shall be borne equally by the Parties. Each Party shall, however, bear its own lawyers’ fees.

The venue of the arbitration shall be London, England or otherwise as agreed by the parties. The arbitration proceedings and record shall be in the English language.

The Parties shall agree to appropriate arbitration terms to exclusively resolve any disputes arising between them from this Agreement.”

Arbitral Tribunal’s decision on seat of arbitration

As the parties’ arguments persisted as to the seat of the arbitration after the Liability Award, upon P&ID’s invitation and request, the Tribunal determined that England was the seat of the arbitration and not Nigeria. Thus, on  April 26, 2016 the tribunal made “Procedural Order No. 12”. It stated at the end: “Place of arbitration: London”, and was “signed on behalf of the Tribunal” by Lord Hoffmann as “Presiding Arbitrator”. In reaching its decision the tribunal stated following five reasons:

In light of the ministry’s commencement of proceedings in the Federal High Court in Lagos, it was apparent that there was a dispute between the parties as to whether the Nigerian courts were entitled to exercise supervisory or curial jurisdiction over the arbitration, and that this depended on whether Nigeria or England was the “seat” or “place” of the arbitration. It was stated that “This is an important question, not only for the purpose of determining the jurisdiction to supervise the proceedings and award, but also for the purpose of the enforceability of the award.

That the issue of the seat of the arbitration had been first raised by the Ministry in its originating motion in the High Court of Lagos on February 24, 2016; that it had been contested by P&ID and that the parties had made submissions on it in letters or emails dated   March 8,11 and 13, 2016.

That P&ID had requested a ruling on seat before the injunction granted by the Nigerian court – “The Tribunal considers that it must therefore consider the question of the seat of arbitration for the purpose of deciding the future conduct of the arbitration. The Tribunal has the power to determine its own jurisdiction (section 12 of the Nigerian Arbitration Act) and its opinion on the disputed question may also be of assistance to the Nigerian court.

That, as to the law, the meaning of the words “the venue of the arbitration shall be London, England” in the GSPA were to be construed in accordance with Nigerian law, and reference was made to 16 of the ACA. The Tribunal concluded that the parties had agreed on the “place of the arbitral proceedings” within. 16(1) of the ACA and thus that the Tribunal’s power to       xsqsthat place was excluded. The question was as to what was the effect of the choice of London by the parties. Having referred to the fact that the ACA was based on the UNCITRAL Model Law, to textbook authority, and to the decision of the Supreme Court of Nigeria in Nigerian National Petroleum Corporation v Lutin Investments (2006) 2 NWLR (Pt 965) 506, the Tribunal said:

“In the opinion of the Tribunal, the parties’ selection of London as ‘the venue of the arbitration’ rather than of any particular steps (such as hearings) in the arbitration indicates that London was selected under section 16(1) as the place of the arbitration in the juridicial sense, invoking the supervisory jurisdiction of the English court, rather than in relation to any particular events in the arbitration.”

That in any event, by reason of matters in the course of the arbitration – set out in paragraphs 19-39 of Procedural Order No. 12 – “the parties and the Tribunal have consistently acted upon the assumption that London was the seat of the arbitration”, and that “the Tribunal considers that the Government must be taken to have consented to this being the correct construction of the GSPA.

The importance of the concept of seat of arbitration and lex arbitri

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’[2], 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 lex arbitri helps to ensure that the arbitral process works as it should. The necessity for such support for (control of) 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 (or place of arbitration). Given that this article focuses on the concept of the arbitral seat in international commercial arbitration – the practical and legal issues arising in connection with the selection of the arbitral seat are important. The location of the legal seat can have profound legal and practical consequences and can materially alter the course of the dispute resolution[3]. 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 “internal” and “external” matters relating to arbitral proceedings, etc. The external matters potentially governed by the law of the arbitral seat concern judicial supervision of the proceedings by the courts of the arbitral seat. Among other things, these include: (a) arbitrators’ competence-competence (also referred to as kompetenz-kompetenz) and the allocation of competence to consider and decide jurisdictional challenges between arbitral tribunals and national courts; (b) annulment of arbitral awards; (c) selection of arbitrators; (d) removal and replacement of arbitrators; (e) evidence-taking in aid of the arbitration; (f) provisional measures in support of the arbitration[5]. In most instances, “external” matters entail affirmative actions of the local courts of the arbitral seat, which consider and decide applications seeking judicial intervention in the arbitral process (e.g., annulling and award; selecting an arbitrator).

Recourse to the Competent Courts

What is a losing party to do if its grievance is not something that can be put right by correction or interpretation of the award and there is no provision for internal review of the award? There are grounds on which an arbitral award may be challenged before a national court at the place of arbitration (the seat of arbitration). The UNCITRAL Model Law, Article 6, provides for each state to designate the court, courts, or other authority competent to perform the functions laid down by the Model Law, which includes setting aside of awards under Article 34. Thus, the courts with supervisory or curial powers or authority are a function of the juridical seat or place of arbitration.

The proper place of challenge

Where then is the proper place of challenge of an arbitral award by a party that is aggrieved? Any challenge to the validity or effect of an award must be addressed to the designated competent court of the seat of the arbitration. If the arbitration had its seat in Switzerland, for example, the competent court is the Swiss Federal Tribunal (although the parties may agree to the court of the canton in which the arbitration took place). In France, it is the Paris Cour d’Appel. In England, it is the Commercial Court of the Queen’s Bench Division in the High Court of Justice. In the United States, it is the district court (the federal first-instance court) of the seat of the arbitration. There is one notable exception to this general rule, although it is probably more theoretical than real: the freedom of the parties to an international arbitration to decide. However, the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), acknowledges that recognition and enforcement of an award may be refused on the basis that the award has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. See New York Convention, Article V (1) (e). It is noted that that some Courts have read the reference to “the country under whose law the award was made” to set aside an award that was not made in their own county, but which was governed by the country’s substantive law. Thus, in two decisions dating back to the 1980s and 1990s, the Indian courts set aside awards rendered in other states on the basis that the substance of the disputes was governed by Indian law.[

Analysis

Clause 20 of the GSPA states: ‘The venue of the arbitration shall be London, England or otherwise as agreed by the Parties.” Better expression and provision should have been made to ensure that the juridical seat was also stated and included within clause 20. 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. By way of analogy, the seat of the arbitration may be London but parties or the tribunal may decide to hold some or all of the hearings in Paris. In this sense, London remains the seat whilst Paris is the venue. 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. A number of points are necessary.

  • To be continued next week

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