Third Party Rights – Arbitrability, Locus Standi and Precipate Action in Arbitration Proceedings in Nigeria, by ‘Funke Adekoya, SAN

Statoil (Nigeria) Limited & Anor v. Federal Inland Revenue Service & Anor

In a landmark decision, which rolls back the giant strides that Nigeria was said to have recently achieved in asserting its arbitration–friendly nature, the Court of Appeal has seemingly reversed its previous position on Section 34 of the Arbitration and Conciliation Act[1] on the extent of court intervention in arbitration proceedings.[2] An earlier decision had also upheld the court’s limited ability to intercede in arbitration proceedings.[3]In this most recent decision, the appellants’ objection to the jurisdiction of the lower court on the ground that the suit was filed in violation of Section 34 of the Arbitration and Conciliation Act which limits the instances in which a Court can intervene in matters governed by the Act, since the Act does not provide for the intervention by any entity which is not a party to the contract which contained the arbitration agreement, and as such lacked the legal standing to institute the action did not find favour before either the lower or the appellate courts.

A dispute arose between the Appellant [Statoil] and Nigerian National Petroleum Corporation [the state oil corporation] as to the interpretation and performance of the Petroleum Sharing Contract [PSC] that the parties had entered into. This resulted in arbitration proceedings being instituted by Statoil.

The Federal Inland Revenue Service [FIRS] then commenced proceedings against all the parties to the arbitration proceedings seeking to determine whether the Arbitral Tribunal has jurisdiction to determine the subject matter of the arbitration. The position of FIRS was that the dispute was based on issues of tax and the interpretation of the Petroleum Profit Tax Act and was not arbitrable as it impacted upon its ability to tax the defendants.

Without deciding whether the dispute before the arbitration tribunal was arbitrable, the Court of Appeal held that although FIRS was not a party to the arbitration agreement it could intervene in the arbitration proceedings. It said, ” if a party to an arbitral agreement can challenge the jurisdiction of the Arbitral Tribunal, or that the arbitral agreement was ab initio, null and void, what about a person or authority such as the 1st respondent who was not a party to the agreement but complains or that if an award is eventually made one way or the other is of the view that the proceedings or subsequent award by an arbitral tribunal constitute an infringement of some provisions of the Constitution or the laws of the land or impede her constitutional and statutory functions or powers, would the person be debarred from seeking declaratory remedies or by originating summons ? I do not think so. Where there is proved a wrong, there has to be a remedy.”

The Court also held that the third party was not required to wait for an award and then seek to set is aside, it could bring independent proceedings to challenge the arbitration proceedings. It said, “I am of the humble opinion that it will be in the best interest of the 1st respondent not to wait or stand by for the Arbitration Tribunal to complete the proceedings and make an award. 1st respondent has the locus standing to act timeously to arrest the situation by a declaratory action or originating summons in a Court of law. Where the claim succeeds, the Court may make a declaration that the arbitral agreement was void ab initio or that the Arbitral Tribunal lacked the jurisdiction to have entertained the dispute on grounds of constitutional or statutory illegality, etc.’

In light of this decision, it would seem that the effect of Section 34 which lists the circumstances in which a court can intervene in arbitration proceedings, has been circumvented as it now appears that a court can intervene at the instance of a non-party to an arbitration agreement in circumstances where the issue of jurisdiction is raised and where the powers conferred by the Constitution or by statute are contravened or need to be interpreted.

[1] “A Court shall not intervene in any matter governed by this Act except where so provided in this Act.”

[2] Nigerian Agip Exploration Limited (NAE) v Nigerian National Petroleum Corporation (NNPC) & Anr of February 2014

[3] Statoil Nig Ltd & Anor v. NNPC & 2 Ors [(2013) 7 CLRN 72]