EXCEPTIONS TO THE FINALITY OF ARBITRAL AWARDS: THE P&ID CASE

by

Gboyega ‘Sanmi Oyewole, SAN, ACIArb. (UK)

 

INTRODUCTION

Arbitration is a private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments.[1] It is a specialized and the most popular form of alternative dispute resolution due to its striking similarities with the traditional dispute resolution mechanism. Arbitration allows parties the autonomy to have their dispute heard in a less formal setting, with the time and costs incurred usually being lower than court litigation. The additional benefit of arbitral hearings is that they are private and the final decisions are not publicized.^[2]

The most important feature that arbitration mirrors off conventional litigation is the finality and enforceability of the decisions delivered at the conclusion of the proceedings which is referred to as an award. The awards given by the Tribunal or Arbiter are final and enforceable by the party seeking enforcement before a competent court just like a judgment delivered by the court in conventional litigation. Major international treaties and conventions have at their core the finality of arbitral awards as a fundamental principle.[3] The Supreme Court of Nigeria has held on the effect of arbitral award that:

“It is very clear and without any iota of doubt, that an arbitral award made by an arbitrator to whom a voluntary submission was made by the parties to the arbitration, is binding between the parties”. ^[4]

[Ras Pal Gazi Construction Co. Ltd v F.C.D.A (2001) LPELR-SC.45/96]

The arbitration process may be either binding or non-binding. When arbitration is binding, the decision is final, can be enforced by a court, and can only be appealed on very narrow grounds. However, when arbitration is non-binding, the arbitrator’s award is advisory and can be final only if accepted by the parties.[5]

 

ARBITRAL AWARDS

An arbitral award, analogous to a court judgment, refers to a decision made by a tribunal or panel in an arbitration proceeding. It can also be described as a decision of the arbitral tribunal on the substance of the dispute and includes any final, interim or partial award and any award on costs or interest but does not include interlocutory orders.[6] It is worthy of note that some awards simply announce the decision (a “bare bones” award), while others give reasons (a “reasoned” award).[7]

Unless the parties agree, all arbitral awards are treated as final and the arbitrators would not have powers to give provisional awards as it is not conferred on them.^[8] However, there are different types of Awards, to wit: interim award which is given before the final decision of the tribunal; partial award which only determines certain parts of the entire issue(s) submitted to arbitration; consent award which is where parties have reached a settlement which is then incorporated in the award; final award which is in writing and signed by all arbitrators as the final document at the end of the arbitration; and additional award which is after the final award where the parties request a decision/clarification on an undecided issue still in dispute.

The Arbitration and Conciliation Act (“ACA”)[9] provides the legal framework for arbitration proceedings in Nigeria. According to Section 31 (3) of the Act, a party seeking to enforce a domestic award may with the leave of the court be enforced as a judgment or order of the court. The application to the court for enforcement and recognition of a domestic award is convoyed with a duly authenticated original award and arbitration agreement or a duly certified copy.[10]

Foreign arbitral awards can be enforced in Nigeria pursuant to Section 51 of ACA or the Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention) as incorporated by section 54 of the ACA. The other less popular ways are through an action upon the award under the common law or by registration under the Foreign Judgments (Reciprocal Enforcement) Act, Cap. F35, Laws of the Federation of Nigeria 2004.

 

EXCEPTIONS TO THE FINALITY OF ARBITRAL AWARDS

An arbitral tribunal’s award must be final and binding on the parties; this is what commercial parties want and this is a general accepted proposition.[11] It is now settled law that a court will not interfere with an award in the absence of recognized statutory grounds for challenge.[12] In addition, rarely would one find provisions allowing for an appeal from a validly conducted arbitral proceeding. However, a dissatisfied party with an award can apply to the court to set aside such award provided the dissatisfied party can show the court that the award contains decisions exceeding the scope of the issues submitted to the panel; or outside the purview of the arbitration agreement; or show some form of bias, corruption or fraud by the Arbitrator(s).

Section 34 of ACA provides that the courts would not intervene in arbitral proceedings or award therefrom unless as provided by the Act and the only instances in the Act that permit court interference is where there is excess of mandate or a complaint of misconduct by an Arbitrator. This position has been affirmed by apex court in Nigeria in NITEL v. Okeke [2017] 9 NWLR (Pt. 1571) 439 where it held that:

“[a] court should not therefore upset the expectation of the parties except for the clearest evidence of wrong doing or manifest illegality on the part of the arbitrator”

Also, provisions of International Treaties such as Article V of the New York Convention sets forth exclusive exceptions to the recognition of an arbitral award by conventional courts in the enforcing state. These include the invalidity of the arbitral agreement; violation of due process; procedural irregularities; non-arbitrability of the dispute; violation of public policy; failure of the award to become binding; or suspension or setting aside of an award in the country where the award was made.

Thus, unless an arbitral award is tainted by fraud, procedural irregularities or the arbitrators acting in excess of the mandate given to them, it is final and binding on all the parties thereto and enforceable by a court of record as the final decision between the parties with respect to the disputes arbitrated over. Inasmuch as the concept of the finality of arbitral awards is universally accepted, there are instance where it negates the need to justice in each case. Consequently, a conflict between doing justice and ensuring the finality of awards would arise.

In such a circumstance, the pertinent question would be what happens in cases where it would be unjust for the courts to allow an arbitral award to stand, even if one of the parties are themselves to blame for the unfair outcome? This, substantially, was the situation Nigeria found itself in the notorious P&ID case where the arbitral proceeding was subject to international scrutiny and tainted with fraud and irregularities.

The scenario depicted by the above question often arises where one of the parties is from a developing country and is disadvantaged because of differences in legal processes, because they did not have the same resources and experience as the other party, or as a result of their gross inadvertence. These cases, such as the P&ID and Nigeria’s arbitration case, put into play the conflict between doing justice, and ensuring the finality of an arbitral award. For reference, a summary of the case is given below.

 

SYNOPSIS OF THE P&ID CASE^[13]

The Agreement between P&ID and the Nigerian Government through the Nigeria National Petroleum Corporation (NNPC) reached in 2010 was for the construction, operation and management of a gas processing facility for a period of 20years from the commencement of the Agreement. Two years down the line, neither parties had taken steps to perform their contractual obligations under the Agreement which then triggered the company to institute arbitration proceeding against the Nigerian government in London pursuant to the dispute resolution clause in the Agreement.

At the material time of the institution of the arbitral tribunal, it is noteworthy that none of the parties had fulfilled the terms or performed their obligations under the Agreement. However, the co-founder of P&ID, Michael Quin claimed that it had expended $40 million in pre-contract projects; secured land from Cross River State Government pursuant to the Agreement and; had secured funding for the project in addition to confirmation for supply of gas from Addax Petroleum.

An independent tribunal sitting in London, in January 2017, found a liability verdict against Nigeria to the tune of $6.6 billion in damages for having defaulted in adhering to contractual terms as contained in a 2010 gas facility contract and annual interest rate of 7% from the time of the contract breach in favour of Process and Industrial Development (P&ID).

Three years later, the Company sought to enforce that arbitral award before a United Kingdom Court which not only upheld the award but also ruled that Nigeria’s state-owned assets domiciled in the United Kingdom could be subject to forfeiture if the country failed to pay the award sum which had grown exponentially to $9.6 billion due to accrued interest. The award sum, which is over 20% of the country’s reserves and annual export value, caused an uproar and the transaction, together with the entire proceedings at the arbitral tribunal was laced with allegations of fraud levelled against several persons and insufficient legal representation by the Nigeria’s representative on the Tribunal.

 

JUDICIAL REVIEW OF ARBITRAL AWARDS

There are dangers inherent in the complete independence of arbitral panels that the concept of finality of awards seeks to guarantee. This is because a process with no system of review is more susceptible to abuse and/or manipulations. Since there is no institutional system of review, aggrieved parties are forced to appeal arbitrators’ decisions in national courts. It should be noted that review by the courts in this regard is only in respect of the procedural irregularities, jurisdiction and scope of the Arbitral proceedings but not of the arbitrators’ substantive conclusions in rendering the award.

An unlimited review of arbitral awards by the courts would amount to inquiring into the merits of the dispute which would inadvertently render the exhaustive process of arbitration merely a prelude to judicial litigation which the parties sought to avoid by submitting their disputes to arbitration. In effect, review systems designed to protect the accuracy of an arbitration award and ensure legal precision may impede the attainment of “justice” through delays accustomed to litigation and increase in expenses to be borne by the parties. Ultimately, such parties are denied the autonomy and protections they sought through arbitration.

Notwithstanding, judicial review is necessary where the proceedings are tainted with fraud to ensure justice is done to all parties, after taking cognizance of the facts, and no party benefits from the inadvertence or disadvantage of another on the altar of finality of awards. Judicial review is also essential when an arbitration award is contrary to public policy or the arbitral/submission agreement is invalid and/or manifestly unenforceable.

In the P&ID case referenced, an English High Court granted Nigeria an extension of time to bring challenges to the arbitral award when P&ID sought to enforce the award three years after it was made. The Court, in its interlocutory ruling, held that Nigeria had established a prima facie case to contest the enforcement final award as having been obtained by fraud and granted it extension of time to conduct investigations and supply credible evidence in support of its case.

The decision of the English High Court here demonstrates how the Courts weigh considerations of finality of an arbitral award and non-interference of courts against the general principles of fairness and public interest.

CONCLUSION

The finality of awards is a fundamental feature of arbitral proceedings that guarantees the efficacy and superiority of arbitration to other dispute resolution mechanisms. It is also generally accepted that the decision of parties to be bound by the awards should not be interfered with by the courts as it would conflict with party autonomy. However, there is a valid argument that more damage will be done to arbitration if parties are left with an award which they are convinced was tainted by bias, but cannot challenge it because it is forbidden.

Insofar as undue interference with awards and the entire proceedings of a validly conducted arbitration is frowned against in all ramifications, the courts should give precedence to doing justice rather than to the finality of awards. This is only when the objective of resolving disputes through this mechanism would be attained and equity, fairness and justice would not be sacrificed on the altar of technicalities.

 

 

 

[1] S.A. Coker, M.O. Adeleke, O.A. Olaseeni, “An Appraisal of Alternative Dispute Resolution as An Antidote to Delay of Judicial Proceedings in Nigerian Courts”, Essays in Honour of Hon. Justice S.M.A Belgore”, 1^st Ed., 2008, p.103

[2] Thomas Walford, “Types of Arbitral Awards”, January 13, 2017, available at https://www.linkedin.com/pulse/types-award-arbitration-thomas-walford

[3] See Article 53 & 54 of the International Centre for Settlement of Investment Disputes (ICSID) Convention and Article 35 of the model law on International Commercial Arbitration 1985 (with amendments as adopted in 2006) The United Nations Commission on International Trade Law (UNCITRAL)

[4] “Enforcement of Arbitral Awards”, Famsville Solicitors,  https://www.famsvillelaw.com/enforcement-of-arbitral-awards/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration

[5] http://www.abanet.org/dispute at page 1

[6] Dr Wong Fook Kong, The Arbitration Award (Myiem.org.my, 2020), Retrieved from (http://www.myiem.org.my/assets/download/PMTD_Talk_TheArbitrationAward_121206.pdf) accessed 10 April 2020.

[7] Stradley Ronon, “Types of Final Arbitration Awards: Why the Choice Matters”, February, 26 2020 https://www.stradley.com/insights/publications/2020/02/adr-advisor-february-26-2020

[8] Thomas Walford, “Types of Award in Arbitration”, January 13, 2017

[9] Arbitration and Conciliation Act, Cap. A18, Laws of the Federation of Nigeria 2004

[10] “Enforcement of Arbitral Awards”, Famsville Solicitors,  https://www.famsvillelaw.com/enforcement-of-arbitral-awards/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration

[11] Sarosh Zaiwalla, “Challenging Arbitral Awards: Finality is Good but Justice is Better”, Journal of International Arbitration, 20^th Ed., 2003.

[12] Statoil Nigeria Limited v. Stardeep Water Petroleum Limited and 4 Ors

[13] Fikayo Akeredolu, “Nigeria and P&ID: The story behind the $9.6 billion judgement”, Stear Business, accessed on 14^th December, 2020. <available at https://www.stearsng.com/article/nigeria-and-pid-the-story-behind-the-96-billion-judgement>

It was submitted by the claimant that the contract between the parties provided for disputes to be settled through arbitration under the rules of Dubai International Arbitration Center (DIAC). It was further submitted that although the claimant had designated its arbitrator and notified the other party to appoint its arbitrator within the notice period, the other party failed/refused to do so. It was alleged by the claimant that such inaction from the other party shall be considered as a waiver of its right to arbitrate.

The other party, the respondent, attended the first hearing of the case and requested that the case be dismissed citing lack of jurisdiction as the contract contained an arbitration clause requiring the parties to refer all disputes to DIAC.

The Court of First Instance accepted the respondents request and dismissed the case due to lack of jurisdiction.

The Court of Appeal agreed with the Court of First Instance and upheld its judgment to dismiss the case due to lack of jurisdiction.

The claimant appealed the judgment at the Court of Cassation. The Claimant argued that it had provided the respondent the opportunity to refer the dispute to arbitration through a notice requesting for the appointment of an arbitrator. However, despite the notice clearly stating that failure or refusal of the respondent to appoint its arbitrator within five days of receiving the notice shall be construed as a waiver of its right to arbitrate, the respondent failed/refused to respond or appoint its arbitrator.

The claimant also submitted that as per Article 2 of the Dubai International Arbitration Center Rules, the court shall not dismiss a case because of lack of jurisdiction unless a request or application was submitted to DIAC requesting for arbitration or conciliation. The Claimant argued that no such request or application was made to DIAC and therefore the lower courts erred in their judgment by dismissing the case due to lack of jurisdiction.

The Court held that the claimant’s argument shall be rejected since Article 203 of the Civil Procedure Law of UAE expressly states that a party to a contract shall not unilaterally resort to the court if the contract contains a mutually agreed valid arbitration clause.

The court observed that although a party shall have the right to waive adherence to arbitration clause such waiver, whether expressly or impliedly conveyed, shall need to be through an act or procedure which clearly reveals the party’s intent to wave the right to arbitrate. Such waiver shouldn’t be ambiguous and should be clearly showing the intention to waive the right.

The Court of Cassation therefore confirmed point of view of the court of Appeal and rejected the appeal.

If the dispute occurred and the litigants did not agree on the arbitrators, or one or more of the agreed upon arbitrators refrained from work, removed it, being removed from it, adjudged as disqualified, or there is obstacle hindering exercising thereof, and there is no agreement between the litigants in this respect; the court concerned originally by consideration of the dispute shall appoint the required arbitrators on the request of a litigant, by the normal procedures of filing the claim.

Consistent with Article 204, the Court also observed that the right of the court to appoint arbitrator is only valid in case arbitration clause doesn’t show the authority or process or mechanism for arbitration. The court further elaborated that even if the clause indicates a provision to define the method of appointment of arbitrators a party to the contract is not entitled to later unilaterally approach the court for the appointment of arbitrators unless mutually agreed.

Since the contract provided that the arbitrators shall be appointed in accordance with the rules DIAC the Court held that Article 27 of DIAC rules shall apply which provides the mechanism for appointment of arbitrators. As per Article 27 of the DIAC rules the executive committee of DIAC has the right to appoint an arbitrator and to appoint the chief of the tribunal in case parties did not.