The Abuja Court of Appeal recently ruled on the right of a non-party to an arbitration agreement in Statoil (Nigeria) Ltd v Federal Inland Revenue Services.(1)

Facts

The appellants and the second respondent entered into a production sharing contract in which the appellants agreed to carry out petroleum operations in areas covered by the agreement. An arbitration clause in the agreement provided that all disputes arising in the course of executing the agreement would be referred to arbitration.

When a dispute arose the appellants and the second respondent went to arbitration under the Arbitration and Conciliation Act.(2) The first respondent (a non-party to the production sharing contract) became aware of the dispute and filed an action at the Federal High Court against the appellants to stop the arbitration proceedings.

The first respondent alleged that the dispute between the appellants and the second respondent before the arbitral tribunal related to taxation (petroleum profit tax and cost oil tax), which is not arbitrable. The first respondent further alleged that the arbitral tribunal's award would impinge on its constitutional right to assess, collect and account for taxes on behalf of the federal government.

The appellants objected to the jurisdiction of the Federal High Court to entertain the first respondent's suit on the grounds that there was a subsisting arbitration proceeding in respect of the same issue, and further alleged that the second respondent had cooperated with the first respondent to bring proceedings against the appellants.

The Federal High Court dismissed the appellants' objections and held that taxation is not arbitrable. The appellants appealed.

Relevant legislation

The Abuja Court of Appeal considered the terms of the production sharing contract and Sections 12(1) to (4), 12(3)(a) and (4), 29 and 34 to 35 of the Arbitration and Conciliation Act.

Under Sections 12(1) to (4), 12(3)(a) and (4) and 29 of the act, only a party to an arbitration agreement can challenge the arbitral agreement and the jurisdiction of the arbitral tribunal.

Section 34 provides that "a Court shall not intervene in any matter governed by this Act except where so provided in the Act".

Section 35 provides that "this Act shall not affect any other law by virtue of which certain disputes:- (a) may not be submitted to arbitration, or (b) may be submitted to arbitration only in accordance with the provisions of that or another law".

Decision

The appeal court dismissed the appeal and held as follows:

  • Sections 34 and 35 of the Arbitration and Conciliation Act recognise the fact that certain issues may not form part of an arbitration agreement and cannot be submitted to arbitration tribunals (eg, if the issues will violate the Constitution or any other statutory enactment).
  • Where the parties have submitted their dispute to an arbitration tribunal, the interpretation of the terms of the arbitral agreement and the award shall have regard to the general principles of conflict of laws of the country chosen by the parties or the laws of the country with which the agreement is most closely connected.
  • As the first respondent was not a party to the contract, it had no right to appear before the arbitration tribunal to challenge either the agreement or the tribunal's jurisdiction to hear and determine the issues in dispute.
  • Sections 12(1) to (4) of the Arbitration and Conciliation Act provides instances when an arbitral agreement or the jurisdiction of an arbitral tribunal could be challenged by a party to the agreement. Sections 12(3) (a) and (4) of the act are also authority that a plea of lack of jurisdiction can be raised only by a party to the agreement. Under Section 29 of the act, the power to set aside an arbitral award is also conferred on a party to the arbitral agreement.
  • If a party to an arbitral agreement can challenge the jurisdiction of the arbitration tribunal or claim that the arbitral agreement was ab initio null and void, it would be wrong to bar a person or authority (eg, the first respondent) which was not a party to the agreement, but which complains that the proceedings or subsequent award by the arbitral tribunal infringe the law or impede its constitutional and statutory functions or powers, from seeking declaratory remedies in a court of law.
  • "Where there is proved a wrong, there has to be a remedy."

Comment

The first respondent instituted the suit on the basis that any potential award in the arbitration pursuant to the production sharing contract – to which it was not a party – would impinge on its right to discharge its statutory functions. The Arbitration and Conciliation Act does not provide for the intervention of a non-party to an arbitration agreement. Thus, the decision is contrary to the act and has been criticised by the Nigerian arbitration community.

For further information on this topic please contact Rosaline Eshett at Dorothy Ufot & Co by telephone (+234 1 463 1723) or email (roseline.eshett@dorothyufotandco.com). The Dorothy Ufot & Co website can be accessed at www.dorothyufotandco.com.

Endnotes

(1) (2014) LPELR – 231444(CA).

(2) Cap A18, Laws of the Federation of Nigeria, 2004.

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