CASE COMMENT: STATOIL (NIGERIA) LIMITED & ANOR v. FEDERAL INLAND REVENUE SERVICE & ANOR (2014) LPELR-23144 (CA) In arbitration, generally, the arbitration agreement, the proceedings arising from the agreement and the award rendered by the arbitral tribunal at the end of the proceedings, usually concern only the parties to the arbitration agreement and proceedings. However, in a departure from this general position of the law with regard to arbitration, in the case of STATOIL (NIGERIA) LIMITED & ANOR v. FEDERAL INLAND REVENUE SERVICE & ANOR (2014) LPELR-23144 (CA), the Court of Appeal decided that it is possible for a person who is not a party to an arbitration agreement to approach the court and seek reliefs that will affect the arbitration agreement, proceedings or award rendered by the tribunal. FACTS On 18th May, 1993 the Nigerian National Petroleum Corporation (“NNPC”) (“2 nd Respondent”) entered into a Production Sharing Contract (“PSC”) with Statoil (Nigeria) Ltd (1st Appellant) and Texaco Nigeria Outer Shelf Company Limited (2 nd Appellant) to carry out petroleum operations in the areas specified by the PSC. In the PSC there was an arbitration clause to the effect that disputes arising in the course of executing the agreement were to be referred to arbitration under the Arbitration and Conciliation Act. During the period of operation of the PSC, a dispute broke out between the parties to the agreement, which led to the invocation of the arbitration clause in the agreement. Pursuant to the arbitration clause, Statoil issued a Notice of Arbitration, which kick started the arbitration proceedings between the parties to the PSC. The issues which arose from the dispute between the parties to the PSC, for determination by the arbitral tribunal included, amongst others, the manner in which Tax Oil was computed and the manner in which Statoil prepared its Petroleum Profits Tax (PPT) returns. During the course of the arbitration proceedings, the Federal Inland Revenue Service (“FIRS”) (1st Respondent”) became aware of the arbitral proceedings and sent a representative to appear before the arbitral tribunal to object to the jurisdiction of the tribunal to hear the dispute, as the issues in dispute, being tax issues, were within the exclusive jurisdiction of the Federal High Court and not arbitrable. The basis for the
objection by the FIRS was that an award made by the arbitral tribunal, no matter how perverse, would have been binding and final and would ultimately impinge on the functions and powers of the FIRS to collect tax under the relevant tax laws. The arbitral tribunal dismissed the objection raised by the FIRS and carried on with the arbitral proceedings. Being dissatisfied with the decision of the tribunal to continue the arbitral proceedings, the FIRS brought an action before the Federal High Court, seeking several Declarations and Orders to the effect that the arbitral tribunal could not continue with the arbitral proceedings, as it lacked jurisdiction to hear tax matters, which are within the exclusive jurisdiction of the Federal High Court. Statoil raised an objection to FIRS’ suit on the ground that FIRS was not entitled to bring the action challenging the arbitral proceedings as it was not a party to the proceedings and that, in fact, NNPC and the FIRS had colluded for FIRS to bring the action in court, as the beneficiary of FIRS’ claim was actually NNPC, who stood to benefit from the failure of the arbitral proceedings. In its Ruling, the Federal High Court dismissed all the objections raised by Statoil, causing Statoil to appeal to the Court of Appeal. DECISION OF THE COURT OF APPEAL At the Court of Appeal, Statoil contended that the FIRS, not being a party to the arbitration agreement, had no locus standi to appear before the arbitral tribunal to challenge the validity of the agreement, or the jurisdiction of the tribunal to hear and determine the issues in dispute, which arose from the agreement. In reaching its decision, the court identified instances when a party to an arbitration agreement could challenge the jurisdiction of an arbitral tribunal and also when it could seek to set aside an award rendered by the tribunal, before proceeding to raise the question that: “if a party to an arbitral agreement can challenge the jurisdiction of the Arbitration Tribunal, or that the arbitral agreement was ab initio, null and void, what about a person or authority, such as the FIRS, who was not a party to the agreement but complains 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 in a Court of law, for instance by an action seeking declaratory remedies, or by originating summons?” Answering the above question in the negative, the Court of Appeal per Joseph Tine Tur, JCA posited that whilst the position of the law is that only a party to an arbitration agreement can sue on the agreement, it is also the law, that where there is proved a wrong, there has to be a remedy. Consequently, being the agency of the Federal Government statutorily charged with the duty of tax collection, the FIRS had locus standi to approach the court, in respect of the arbitration agreement and the proceedings arising therefrom, as a result of the fact that whatever award the tribunal would have rendered, would have touched upon the powers of the FIRS to collect the necessary taxes prescribed by law. The court further held that it was in the best interest of the FIRS not to wait or stand by for the Arbitral Tribunal to complete the proceedings and make an award. The FIRS had the locus standi 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. Finally, the court held that Statoil’s contention that the FIRS had colluded with NNPC to bring the action challenging the arbitration, for the benefit of NNPC under the PSC was untenable as a party who institutes an action in court to protect and enforce its statutory right, cannot be accused of collusion. Based on the foregoing, the Court of Appeal dismissed Statoil’s appeal and held that the FIRS was right to have approached the Federal High Court to halt the arbitration proceedings on the basis of illegality. COMMENT In essence, the decision of the Court of Appeal recognized the fact that even under the Arbitration and Conciliation Act, only a party to an arbitration agreement can approach the court seeking reliefs in respect of the agreement. The decision however, also, effectively in the manner of an exception, is to the effect that in cases where the arbitration agreement and consequently, the proceedings and award arising therefrom, will affect the rights of a
third party under the Constitution or a statute, such a third party will have locus standi to approach the court for the purpose of contesting the validity of the agreement. In this case, there was no dispute as to the non-arbitrability of the tax issues taken before the arbitral tribunal, as those issues are, under the Constitution, within the exclusive jurisdiction of the Federal High Court and this fact was conceded by Statoil. The main issue and one which will certainly concern arbitration practitioners, is the possibility of a third party, who is not a party to an arbitration agreement, being able to approach the court to disturb the arbitral proceedings arising from the agreement. It can be said that this decision of the Court of Appeal has created an avenue, which under Nigerian arbitration jurisprudence, was not previously thought to exist, through which third parties may tamper with the sanctity of the agreement of parties to have their dispute resolved by arbitration. However, it must be said that particularly on its facts, the conclusion reached by the Court of Appeal in this case is agreeable. Here, it was clear that the arbitral tribunal which was set up by a private agreement of Statoil and NNPC was going to violate the provisions of the law, by arbitrating matters that are, by law, excluded from arbitration. It can only be right for the gatekeeper who will be affected in the performance of its statutory duties by the decision of the tribunal, to be allowed to approach the court to halt the proceedings or set aside the award that has arisen in breach of the law, as if this was not the case, the provisions of the law will have been circumvented, with no remedy in sight for the FIRS, whose rights and powers provided by the statute, will have been violated. MOFESOMO TAYO-OYETIBO1 TEMITOPE ISHOLA
1 Mofesomo Tayo-Oyetibo & Temitope Ishola are Legal Practitioners in the Commercial Law Practice Group at the Law Firm of Tayo Oyetibo & Co. Email: mofe@tayooyetibolaw.com