Esso Exploration and Production Nigeria Limited v. Nigeria National Petroleum Corporation, No. 1:14-cv-08445 (S.D.N.Y. Sept. 4, 2019) [click for opinion]
In 1993, Esso Exploration and Production Nigeria Limited and Shell Nigeria Exploration and Production Company Limited (together "Esso") entered into a contract with Nigerian National Petroleum Corporation ("NNPC"). The agreement concerned oil drilling in the Erha oil field off the coast of Nigeria, and contained an arbitration clause for arbitration in Nigeria under Nigerian law. The contract allowed Esso to drill the field while sharing profits with NNPC. Esso explored and developed the oil fields and began production in 2006. Through 2009, Esso had invested over $6 billion in the project.
In 2007, President Umaru Musa Yar'Adua of Nigeria established a committee to review whether NNPC should be taking – known as "lifting" – more oil than Esso was allocating to NNPC under the agreement. The committee issued its report in February 2008 concluding that Nigeria had been deprived of $646.3 million. After meeting with the committee, the president, on May 20, 2008, ordered NNPC to lift more oil per the committee's recommendation. NNPC had actually begun lifting more oil in December 2007 or January 2008, or before the president's order. NNPC also refused to submit Esso's tax returns to the Nigerian tax authority ("FIRS"), instead providing its own.
Esso commenced arbitration because of the over-lifting in July 2009. In arbitration, NNPC argued that the dispute was not contractual, but a tax dispute subject to the exclusive jurisdiction of the Nigerian Tax Appeal Tribunal. Nigeria's Constitution also prevented the arbitration of tax disputes. The tribunal rejected these arguments and found that it had jurisdiction over the contractual dispute. It subsequently awarded Esso $1.799 billion in damages for the difference between what NNPC lifted and what it was entitled to lift.
The Nigerian Federal High Court, a trial court, allowed FIRS to enjoin the arbitration, even though the arbitration had already concluded, as well as vacated the award in two separate decisions based on the same reasoning. In both cases, the court held that the underlying dispute was primarily a tax dispute so the arbitral tribunal did not have jurisdiction. On appeal, the Nigerian Court of Appeal found that the award had been properly set aside because the matter was primarily a tax dispute, but reinstated some of the non-monetary aspects of the award because it found that they were contractual in nature. Esso appealed these decisions and also filed suit in the Southern District of New York to confirm the award.
The district court first concluded that it had personal jurisdiction over NNPC because it was Nigeria's alter ego. The court concluded that NNPC was Nigeria's alter ego because (1) its decision to lift additional oil was influenced by Nigeria and the establishment of the committee, (2) Nigeria controlled the day-to-day operations and NNPC acted for the benefit of Nigeria, and (3) it shared property with Nigeria which treated it as its own. All that was required, therefore, was subject-matter jurisdiction under the Foreign Sovereign Immunities Act (the "FSIA") and proper service, neither of which was in dispute. Alternatively, NNPC had sufficient minimum contacts to comport with the due process requirement of personal jurisdiction, if necessary, because NNPC solicited and negotiated the Agreement in the U.S. by, inter alia, attending a roadshow in Houston, soliciting bids and engaging in contracting there, and regularly transacted in U.S. dollars with U.S. bank accounts. The court needed to only establish minimum contacts with the U.S., rather than New York specifically, because Esso invoked federal question jurisdiction under the FSIA so the Fifth Amendment controlled. The court did not find any factors that would render jurisdiction unreasonable.
Esso also succeeded in defeating NNPC's forum non conveniens claim. In its analysis, the court considered the degree of deference to Plaintiff's choice of forum, the adequacy of the alternative forum, and the balances of the private and public interests of the implicated. It noted that the threshold issue was to ensure that trial was convenient. This threshold issue alone warranted dismissing NNPC's argument because the case did not include a trial nor required any more discovery. Although Nigerian courts would be adequate, there was a presumption that Plaintiff's choice of forum should be respected and the weight of interests supported dismissing NNPC's non conveniens argument.
The court did, however, refuse to confirm the arbitration award because it had been set aside at the seat by the Nigerian courts. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") provided that an award may refuse to confirm an award if it has been set aside at the seat. This exception is permissive, not mandatory, and the decision is within the court's sound discretion. First, the court found that resuscitating a vacated award, even if partially reinstated, on the basis of its inherent authority alone was beyond the court's authority as provided by the Federal Arbitration Act (the "FAA"). Second, the court distinguished this circumstance from Corporación Mexicana de Mantenimiento Integral v. Pemex-Exploración Y Producción. NNPC had maintained from the beginning that this was a non-arbitrable tax dispute, no retroactively applicable law had been passed, the Nigerian court's holdings did not offend basic standards of justice, and Esso had another forum available as it had several appeals pending in Nigeria. The court also rejected that Esso had not been afforded due process in Nigeria—Esso had been given some process, even if the appeals process was a lengthy one.
Lastly, the court denied Esso's adverse inference motion seeking to establish certain facts as a sanction for discovery violations regarding the production of documents related to the case. Some of the facts related to jurisdiction and so were denied as moot because jurisdiction had been established. Some facts did not relate to the discovery violations and were also moot. The court concluded that "because the requested inferences are mostly moot, and the only facts that are arguably not moot are irrelevant to the discovery violations, this Court cannot impose the requested sanctions."