A recent decision of the Nigerian Court of Appeal on whether a third party can challenge an arbitration agreement in Nigeria, i.e. whether a person who is not a party to an arbitration agreement can bring an action in the courts to challenge the arbitration proceedings based on the agreement, has stirred up some controversy. The judgment of the Court of Appeal in Statoil Nigeria Ltd & Anor v Federal Inland Revenue Service & Anor which was delivered in June 2014 has been reported recently in (2014) LPELR-23144.

In essence, the Court of Appeal held that the Federal High Court was justified to refuse an application to stay its proceedings in which the arbitration agreement and proceedings were challenged by a third party on the basis that the third party had locus standi to bring the challenge before the courts. The key facts of the case are as summarised below.

The Nigerian National Petroleum Corporation (NNPC) entered into a production sharing contract with Statoil (and others); the production sharing contract contained a clause that disputes should be referred to arbitration; following a dispute, the parties commenced arbitration under the Nigerian Arbitration and Conciliation Act.

The Federal Inland Revenue Service (FIRS) which was not a party to either the production sharing contract or arbitral agreement or, for that matter, the arbitral proceedings took the view that the issues/disputes between the parties before the arbitral tribunal were “in essence, issues, and controversies arising from the differing interpretations of the Petroleum Profit Tax Act and other tax Legislations and that these issues/disputes and controversies are within the jurisdiction of the Federal High Court.” Accordingly, the FIRS commenced an action by Originating Summons in the Federal High Court seeking declaratory reliefs including whether the arbitral tribunal had jurisdiction to entertain a matter dealing with taxation – especially as an award might impinge on the right of the FIRS “to assess and collect tax and generate revenue for the Federal Government of Nigeria.”

According to the Report of the case, the challenge by Statoil (and Texaco) to the jurisdiction of the Federal High Court to hear and determine the originating summons was based on the grounds that FIRS was not a party to the arbitration agreement and lacked legal standing to institute the summons; that the Originating Summons constituted an abuse of the court process; that the Originating Summons was filed in violation of the Arbitration and Conciliation Act. It was also contended that the Originating Summons was vexatious, oppressive and an abuse of judicial process based on an allegation of collusion between the NNPC and the FIRS in the filing of the Originating Summons.

The Federal High Court dismissed the objections to its jurisdiction and the request to stay its proceedings and it was this dismissal that went on appeal to the Court of Appeal. In reaching its decision that the Federal High Court was justified to dismiss the objections to its jurisdiction, the Court of Appeal seemed to focus mainly on the question whether the FIRS had locus standi to commence the Originating Summons before the Federal High Court in the extant circumstances. The Court said that considering that a party to an arbitration agreement can challenge the jurisdiction of the tribunal or claim that the arbitration agreement was void, then a person or authority (e.g. FIRS) who was not a party to the arbitration agreement should not be debarred from seeking declaratory remedies from the court, if he complains that the arbitral proceedings or an award made under the arbitral agreement would “constitute an infringement of some provisions of the Constitution or the laws of the land or impede her constitutional and statutory functions, or powers.”

The Court of Appeal also held that the appellant oil companies had made a tacit admission that FIRS had locus standi to commence the Originating Summons by accepting in their affidavit that an arbitral award favourable to them would direct that tax returns prepared by them (rather than NNPC) should be filed with the respondent (FIRS) and had conceded that the FIRS had a statutory duty (inter alia) to assess and collect tax.

The Court of Appeal also noted that in Nigerian Ports Authority vs Panalpina World Transport (Nig) Ltd (1973) 1 All NLR (Pt.1) 486, the Supreme Court held that an arbitral award made by a body called the Arbitration Board was given in excess or lack of jurisdiction and was thus illegal and null; that having so held, the Supreme Court also granted consequent declaratory reliefs in respect of assets including immovable property situated outside the jurisdiction of the trial court. The Court of Appeal thus took the view that the importance of the Supreme Court decision was “to show that an arbitral agreement could be challenged and declared a nullity by a competent Court in a substantive action or originating summons on grounds of excess or lack of jurisdiction on the Arbitral Tribunal, or that the agreement was ab initio, null and void, having no effect in law or in fact.”

The Court of Appeal also relied on Order 3 rules 6 and 7 of the Federal High Court (Civil Procedure) Rules, 2009, to the effect that any person who claims “to be interested under a deed, will enactment or other written instrument” or who claims “any legal or equitable right in a case where the determination of the question whether such a person is entitled to the right depends upon a question of construction of an enactment” is entitled to seek declaratory reliefs by Originating Summons.

Finally, the Court of Appeal dismissed the allegation of collusion between the NNPC and the FIRS; it held that a person, body or authority that instituted an action in a Court of Justice to protect or secure statutory or constitutional rights, privileges, or immunity, etc, could not be said to be acting in collusion.

On the face of it, there is logical internal consistency to the decision of the Court of Appeal. On the other hand, the problems with the decision seem to stem more from what it overlooks than what it actually decided. It is true, for example, that Order 3 Rule 6 of the Federal High Court Rules allows a person to commence action by Originating Summons if he claims “to be interested under a deed, will enactment or other written instrument”. It would have been more helpful, however, if the court had undertaken a more detailed examination to conclude that “other written instrument” in that language encompasses an arbitration agreement or to decide whether it is to be interpreted more restrictively.

The predication on Order 3 Rule 7 of the same provision, that a person is entitled to commence action by Originating Summons if the interpretation of an enactment is in issue, appears stronger. Nevertheless, a consideration of other factors which the court seemed not to take into account would suggest that even that is not really as strong as it appears in the circumstances of a third party challenge to an arbitration agreement.

Arguably, the most critical factor that was overlooked or at least insufficiently considered is in terms of the provisions of the Nigerian Arbitration and Conciliation Act. In the first place, section 34 of that Act provides that a court shall not intervene in any matter governed by the Act except where so provided in the Act itself. The Preamble to the Act says that its purpose is “to provide a unified legal frame work for the fair and efficient settlement of commercial disputes by arbitration and conciliation” and also to make the New York Convention on the Recognition and Enforcement of Arbitral Awards applicable in Nigeria. Following on from the Preamble and considering its specific provisions, it is fairly clear that matters governed by the Act include arbitration agreements, arbitral proceedings as well as the recognition and enforcement of arbitral awards.

Section 4 of the Arbitration and Conciliation Act provides that if an action which is the subject of an arbitration agreement is brought before a court the court shall stay its proceedings if so requested by a party who makes the request not later than when filing his statement on the substance of the dispute. An interesting observation about the language of section 4 is that its focus seems to be on the parties before the court and not necessarily the parties to the relevant arbitration agreement; compare for example section 5 of the same Act which clearly focuses on circumstances when the parties before the court are also the parties to the arbitration agreement. Nevertheless, the terms of section 4 give us an indication of how the Court of Appeal might have approached the instant case differently.

As alluded to earlier, the focus of the Court of Appeal was principally on whether the FIRS had locus standi to bring the Originating Summons before the court. In fairness, it also seems that this was the first line of argument pursued on behalf of the oil companies. However, the fact that a party before a court might have locus standi and might be properly before the court is not of itself sufficient to deprive the court of its ability to exercise its jurisdiction to stay the proceedings. The terms of section 4 of the Arbitration and Conciliation Act contemplate that the parties in the action before the court might be properly before the court; hence it says that the party seeking a stay of proceedings must do so no later than when it submits its first statement on the substance of the dispute. It is also important to bear in mind the use of the imperative “shall” in section 4 i.e. the court “shall” stay its proceedings which suggests, at least prima facie, that the court must stay its proceedings following a prompt request.

Beyond section 4, the Arbitration and Conciliation Act also provides in section 12 that an arbitral tribunal shall be competent to rule on matters pertaining to its own jurisdiction. Ordinarily, this suggests that it is for the tribunal to decide on its own jurisdiction; however, it may be argued that this is not a total preclusion in all circumstances of the ability of courts to rule on the jurisdiction of an arbitral tribunal. The Court of Appeal pointed to the example of the Panalpina case where the Supreme Court held that the Arbitration Board lacked or exceeded jurisdiction. Another argument that may be raised along this line might depend on section 35 of the Act (also mentioned by the Court of Appeal) which provides that the Act’s provisions do not affect any other law by which certain disputes are not arbitrable or are only arbitrable on stated conditions. On the other hand, there is one important distinction from the Panalpina case which the Court of Appeal did not seem to address directly. The Panalpina case concerned a situation where an award had already been made whereas the present case is to prevent the holding of arbitral proceedings at all.

In light of the foregoing, while the Court of Appeal’s decision that the FIRS had locus standi in respect of the Originating Summons before the Federal High Court has a consistent logic to it, the decision’s main shortcoming is in terms of inadequate consideration of directly relevant provisions of the Arbitration and Conciliation Act. Specifically, the court should have paid attention to the provisions that require the lower court to stay its own proceedings, irrespective of whether the parties have locus standi and are properly before the court, at the request of a party who acts promptly when the matter before the court is the subject of arbitral proceedings.

The Court of Appeal’s decision might also have better reflected awareness of sensitivities about supporting and promoting international commercial arbitration and Nigeria’s perception as an arbitration friendly centre. It is in this respect that some of the critical commentaries on the Court of Appeal’s decision have been focused. Some of the already extant commentary suggest that the decision reverses the positive impressions that had been generated by recent decisions including especially Nigerian Agip Exploration Limited (NAE) v Nigerian National Petroleum Corporation (NNPC) & Anor CA/A/628/2011 of February 2014; and, Statoil Nigeria Ltd & Anor v NNPC & 2 Ors 2014 NWLR (Pt 1373) 1; (2013) 7 CLRN 72.

It may be that the Court of Appeal’s decision in Statoil v NNPC under consideration here is not as damaging as it might first appear. The decision should not be read as an open cheque for third party challenge of arbitration agreements in Nigeria. Rather the decision should be read as simply to the effect that in some circumstances a third party to an arbitration agreement has locus standi to file an action before the courts challenging the arbitration agreement. The decision is not per se to the effect that the court cannot stay its jurisdiction in such an action. It is thought that commentary highlighting this distinction and stressing the importance and need to exercise the courts’ jurisdiction to stay proceedings is more likely to be beneficial to the courts in appreciating the fine distinctions that often need to be made and the important sensitivities about arbitration friendliness. In any event, an authoritative decision on the matter by the Nigerian Supreme Court would be most welcome.