Adedapo Tunde-Olowu December 21 2017 Arbitrator's reformulation of issues agreed by parties does not constitute misconduct ǼLEX | Arbitration & ADR - Nigeria Adedapo Tunde-Olowu Arbitration & ADR IntroductionFactsTribunal decisionChallengeCourt decisionIntroductionIn a recent case between Statoil Nigeria Limited and Star Deep Water Petroleum Limited, Famfa Oil Limited, Petroleo Brasileiro Nigeria Limited, Texaco Nigeria Outer Shelf Limited and the Nigerian National Petroleum Corporation (NNPC) (joined by order of the court), Statoil sought to set aside an arbitral tribunal's final award on the grounds that the tribunal had misconducted itself by reformulating the issues agreed by the parties to include a preliminary issue which was capable of removing the need to determine all of the issues presented by the parties. On May 31 2017 the Federal High Court, sitting in Lagos, dismissed Statoil's application and refused to set aside the award.(1)FactsThe dispute which resulted in the arbitral proceedings arose from Statoil's dissatisfaction with an expert decision resolving disputed tract participation in the Agbami oilfield located offshore Nigeria. The parties to the suit had all executed the Agbami Unit Agreement (AUA), wherein they had all agreed to develop the Agbami oilfield jointly.The Agbami oilfield straddles two lease areas covered by Oil Mining Licences (OML) 127 and 128. Star Deepwater Petroleum Limited, Famfa Oil Limited and Petroleo Brasiliero Nigeria Limited were lessees of OML 127 (Tract 1). Statoil Nigeria Limited and Texaco Nigeria Outer Shelf Limited were contractors under a production sharing contract with the NNPC, which was the lessee of OML 128 (Tract 2).The AUA provided for a redetermination process, which would determine the percentage share of oil production from the Agbami oilfield that each licence area would receive at the conclusion of the redetermination process. The AUA set out the process and provided for the appointment of an expert to determine disputes where the parties to the AUA could not agree on the data and interpretations to be included in the evaluation database, which formed the basis for the redetermination process. The AUA provided that an expert's decision was final and binding. The parties also agreed an ad hoc mandate which provided that where such admissibility questions entail matters of contractual interpretation, the expert's decision would not be final and binding.The expert's decision was contested by the applicant and submitted to arbitration pursuant to the arbitration agreement in the AUA, which provided that the arbitration would be governed by Nigerian law. The NNPC was not made a party to the arbitration.Tribunal decisionAt the hearing, the parties submitted their different lists of issues to be determined by the tribunal. After considering these lists, the tribunal formulated its own list of issues, which included a preliminary issue. The tribunal held that if the preliminary issue was decided in the affirmative, it would dispose of all of the issues in dispute between the parties and remove the need to decide the other issues on the parties' respective lists of issues (they had been unable to agree a joint list of issues). The tribunal's list was presented to the parties and they agreed to use it. In its award, the tribunal determined the preliminary issue in the affirmative and refused the applicant's claim.ChallengeDissatisfied, the applicant applied to the Federal High Court through an originating motion to set aside the award on one or all of the following grounds:the tribunal had misconducted itself procedurally and/or substantively;the tribunal had acted unlawfully; andthe tribunal had committed successive jurisdictional errors of law.The applicant argued that the tribunal had done this by:misconstruing its own jurisdiction;committing serious procedural irregularity, as the parties to the arbitration had had no opportunity to make submissions on matters subsequently determined by the tribunal as being of central importance to the matters in dispute;failing to make a determination regarding a matter of critical importance that was:referred to the tribunal for determination; andrequired to be resolved in order to dispose of the dispute fairly;failing to construe the relevant provisions of the parties' agreement in accordance with the applicable Nigerian laws and canons of interpretation and instead imposing an equitable determination of the matter ex aequo et bono (ie, according to what is right and good), contrary to Section 22(3) of the Arbitration and Conciliation Act;(2) andunlawfully applying equitable principles to resolve the dispute, in place of a proper and lawful construction of the parties' written agreement.As stated above, the NNPC was not initially a party to the applicant's suit, but was subsequently joined as a party to the action following a Federal High Court order to that effect.In response to the applicant's arguments, the respondents argued that:the tribunal had conclusively determined all of the issues submitted to it in its November 2 2015 award; andsaid award was final and binding on the parties.The respondents further argued that a tribunal has the power to formulate the issues in a dispute before it. More importantly, since all of the parties to the arbitral proceedings had agreed to the issues formulated by the tribunal, the applicant could not argue that the tribunal had failed to make a determination on all of the issues referred to it for resolution. The respondents also argued that having determined the preliminary issue in the affirmative, the tribunal had not needed to address the other issues on the lists.The NNPC, which did not participate in the arbitral proceedings, filed an affidavit supporting the case put forward by Statoil. The NNPC suggested additional grounds of misconduct to support Statoil's case and asked the court to set aside the award, even though it had not filed a counterclaim.Court decisionThe Federal High Court dismissed Statoil's suit, holding that although a jurisdictional error is a variant of misconduct, it is only where a tribunal has acted without jurisdiction that its decision is liable to be set aside. The court, citing the decision in Revenue Allocation, Mobilization and Fiscal Committee v Units Environmental Services Ltd,(3) held that an arbitrator cannot be guilty of misconduct if he or she solely identifies the key issues in dispute between the parties and reformulates them for ease of consideration. More importantly, the court referred to portions of the transcript of the arbitral proceedings, where counsel to the parties (including the applicant's counsel) had agreed to the issues formulated by the tribunal and held that in view of this agreement, the applicant's originating motion had no basis in law. According to the court:"In one breadth, the Applicant complains that the Tribunal did not discharge the responsibility cast upon it in that it failed to construe the Unit Agreements of the parties and its provisions on the process of Redetermination. Of course it is true that at page 20 of the award the Tribunal started that the issues in dispute turn on the proper construction of relevant provisions of the Unit Agreement. Does this make it an issue for determination as such? I think not. In my view, what the Tribunal did here was to set the state for the award by identifying the prelude to the award. By the agreement of the parties, the issues were captured in the post-submissions of agreed list of issues set out by the Tribunal at pages 31 to 34 of the award as mitigated by the agreement of the parties reserving the powers in the Tribunal to determine one of the issues and rendering others otiose. This reservation was raised, as shown above, before the Tribunal without any objection by the Applicant. The Applicant cannot now question the authority of the Tribunal on the point. A party having allowed a point to be raised before the arbitrator, cannot thereafter call into question the authority of the arbitrator to entertain it. See Macaura v. Northern Assurance Co. Ltd (1925) AC 619." (Emphasis added.)The court expressed the view that:the tribunal's jurisdiction had ultimately been determined by the parties' agreement; andif the applicant had intended to challenge the tribunal's jurisdiction, it should have raised the challenge before the tribunal.The court also found that there was no basis to impeach the award on the grounds that the tribunal had decided the dispute ex aequo et bono or as amiable compositeur (ie, where a arbitral tribunal is not bound by strict rules of law, but will resolve the dispute on the basis of equity and fairness). In the court's view:Nigerian law allows the infusion of commercial workability to improve business efficacy in the interpretation of a contract; anda decision based on the commercial workability of a contract cannot contravene Section 23(4) of the Arbitration and Conciliation Act.For further information on this topic please contact Adedapo Tunde-Olowu or Ngozi Efobi at ǼLEX by telephone (+234 1 4617 3213) or email ([email protected] or [email protected]). The ǼLEX website can be accessed at www.aelex.com.Endnotes(1) Suit FHC/L/CS/100/2016.(2) Cap A18, Laws of the Federation of Nigeria, 2004.(3) (2010) LPELR-9205 (CA).