STRANGE BEDFELLOWS- CONTRACT REGISTRATION UNDER THE NOTAP ACT AND THE VALIDITY OF FOREIGN ARBITRAL AWARDS Background In a consolidated decision made in Suit Nos. CV/481/18 and CV/2443/18 on 17th July, 2020 the High Court of the Federal Capital Territory set aside a foreign arbitral award on the ground that the underlying contract between the parties was non-compliant with the registration requirement of the National Office for Technology Acquisition and Promotion Act (NOTAP Act). The facts of this case are that the Applicant- Sahelian Energy and Integrated Services Limited (Sahelian), is an indigenous company that needed a technical partner with an electricity distribution licence in a foreign country for the purpose of participating in the privatization process of the Kaduna Electricity Distribution Company. Pursuant to this, Sahelian and the 1st Respondent- Limak Yatirim, Enerji Uretim Isletme Hizmetleri Ve Insaat A.S (Limak) entered into a Cooperation Framework Agreement (CFA). Under the CFA, Limak was to provide Sahelian with technical support over a five-year period for a fee of $17.5 Million. In August 2013 Limak applied to register the CFA with the National Office for Technology Acquisition and Promotion (NOTAP) but the application was refused on the ground that it violated the requirements of the NOTAP Act and the 2011 Revised Guidelines for the Registration and Monitoring of Technology Transfer Agreements in Nigeria. When a dispute subsequently broke out between the parties, they went to ICC arbitration and a final award was made in Limak’s favour. High Court Set Aside Proceedings Sahelian applied to the High Court of the Federal Capital Territory to have the award set aside on the grounds that the award was against public policy of Nigeria and that there was an error of law on the face of the award. In the set aside proceedings, Sahelian essentially argued that section 5(2) of the NOTAP Act requires a contract such as the CFA to be registered with NOTAP but the CFA was not so registered, by reason of which performance of the payment obligations under the CFA is illegal under section 7(1) of the NOTAP Act. It was also argued that the Arbitral tribunal found that the CFA required registration with NOTAP but nevertheless held that the non-registration was not sufficient to discharge the Applicant of its payment obligations under the agreement, by reason of which the award is perverse in law as it seeks to enforce a payment obligation that clearly contravenes mandatory requirements of a Nigerian statute. Limak opposed the set aside proceedings and in doing so argued that it was a gross abuse of court process deliberately designed to irritate, annoy and harass because the power of the Nigerian Court to set aside an Arbitral Award is limited by the Arbitration and Conciliation Act 2004 to only Domestic Awards and not International Awards.
In its decision, the High Court held that registration of the CFA under the NOTAP Act was a condition precedent to the recognition and enforcement of the agreement and where the court recognizes an award rooted in a contract that is in breach of an established law, it would amount to giving effect to a contract that is ex-facie void for non – registration. In relation to the power to set aside the foreign award, the court found that it had this power, by virtue of the provisions of section 48 of the Arbitration and Conciliation Act (ACA) and Order 19 Rule 12(g) of the High Court of the Federal Capital Territory (Civil Procedure) Rules (FCT Rules). For these reasons, the court set aside the arbitral award. Court of Appeal Proceedings Limak appealed to the Court of Appeal and in that court, the first issue was whether section 48 of the ACA and Order 19 Rule 12(g) of the FCT Rules empower the High Court to set aside a foreign arbitral award. On this issue the Court of Appeal agreed with the High Court and decided that sections 48, 51 and 52 of the ACA empower the High Court to not only refuse recognition and/or enforcement of both foreign and domestic arbitral awards but also to set aside such awards, irrespective of the country in which the award was made. The Court of Appeal further held that the law of the seat of arbitration is inapplicable when it comes to enforcement of a foreign arbitral award in Nigeria and such an award can be set aside under sections 48 and 52 of the ACA when it is against the public policy of Nigeria. The second issue was whether the High Court was right to have set aside the award for non-registration of the underlying CFA with NOTAP. On this issue, the court held that since there was no dispute that the CFA was to have been registered with NOTAP but was not registered, the parties violated Nigerian law and the public policy of Nigeria by failing to comply with the registration requirement under the NOTAP Act. Therefore, to allow the recognition and enforcement of the arbitral award will be against the public policy of Nigeria and a disservice to the rule of law and due process in Nigeria. In this regard, the court held that enforcement of the monetary award for payment of money to Limak would amount to a violation of section 7(1) of he NOTAP Act, which prohibits payment in Nigeria to the credit of any person outside Nigeria by or on the authority of the Federal Ministry of Finance, the Central Bank of Nigeria or any licensed bank in Nigeria in respect of any payments due under a registrable contract, unless the contract is registered. For these reasons, the Court held that the High Court was right, under sections 48 and 52 of the ACA, to have set aside the arbitral award. Power of Nigerian Court to Set Aside Foreign Arbitral Award When it comes to the issue of setting aside foreign awards in Nigeria, the relevant law is the ACA. Part III of the ACA contains “Additional Provisions Relating to International Commercial Arbitration and Conciliation” and includes sections 43 to 55 of the Act. Specifically, section 43 of the ACA provides that the provisions of that Part of the Act shall apply solely to cases relating to international commercial arbitration and
conciliation, in addition to the other provisions of the Act. Section 48 of the Act provides for certain circumstances under which the High Court may set aside an arbitral award. However, there is no provision in the entire section that specifically provides for the power of the court to set aside a foreign arbitral award not made under Nigerian law. Therefore, the appropriate interpretation to be given to the provisions of section 48 of the ACA is that the power to set aside under that section relates only to international arbitrations conducted under Nigerian law and awards arising from such arbitrations. In other words, international arbitrations where the seat of arbitration is Nigeria and not another country. Both the High Court and Court of Appeal relied on sections 48 and 52 of the ACA as the basis for their decisions that the High Court has the power to set aside a foreign arbitral award. However, there is no part of section 52 that provides any such power. Rather, what section 52 does is to provide for circumstances under which the High Court may refuse to recognize or enforce an arbitral award. In law, there is a fundamental difference between the recognition and/or enforcement of an arbitral award and setting aside the award and where a court decides not to recognize or enforce and award, it does not mean that the award has been set aside or constitute a ground for the award to be set aside. This fundamental distinction is self-evident enough from a literal interpretation of the phrases “set aside”, “recognition” and “enforcement”. In other words, section 52 of the ACA provides only a defensive tool against a foreign arbitral award by way of refusal of recognition or enforcement of the award and not an offensive tool by way of setting aside. Furthermore, section 52(2)(a)(viii) of the ACA provides that the recognition or enforcement of an award may be refused where the award has been set aside or suspended by a court in which, or under the law of which, the award was made. It is apparent from the provisions of section 52(2)(a)(viii) of the ACA that where a Nigerian court is to decide whether to recognize or enforce a foreign award, what the law contemplates is a scenario in which the award may have been set aside by the court in which, or under the law of which, the award was made and not a Nigerian court. This provision clearly recognizes the fact that it is the law under which an award is made that determines its validity and whether it should be set aside. The power of the court to set aside an arbitral award is statutory power provided by the ACA, which means that since there is no specific power to set aside a foreign arbitral award, there is no legal basis upon which the court can make such an order. For this reason, the decision of the Court of Appeal that the High Court was right to have set aside a foreign award pursuant to sections 48 and 52 of the ACA is apparently unsupported by the actual provisions themselves.
Relevance Of Non-Registration With NOTAP In this case, it was agreed by the parties that the CFA required registration with NOTAP but was not registered, so there is nothing to see there. The real question is whether the non-registration warranted the setting aside of the foreign award, assuming for this purpose that the High Court has the power to set aside a foreign award. By section 7(1) of the NOTAP Act, the only consequence of non-registration of a registrable contract is that no payment shall be made in Nigeria to the credit of any person outside Nigeria by or on the authority of the Federal Ministry of Finance, the Central Bank of Nigeria or any licensed bank in Nigeria in respect of any payments due under the contract. Specifically, the NOTAP Act does not provide that such a registrable contract or acts performed pursuant to the contract shall be void. In its judgment, the Court of Appeal acknowledged that the Appellants relied on the decision of that court in the case of STANBIC HOLDINGS PLC V FRCN (2020) 5 NWLR (PT 1716) 91 in relation to the consequence of non-registration of a registrable contract under the NOTAP Act. However, in resolving the issue, the Court of Appeal unfortunately did not go back to review the Stanbic decision and gave its decision in this case without considering its earlier position on the same point. In the Stanbic case, the Court of Appeal had held that failure to register a registrable contract or agreement under the NOTAP Act does not render such contract or agreement illegal or null and void but only prevents any payment in Nigeria of the financial obligations of the parties thereunder to the credit of any person outside Nigeria by the named institutions in the provisions of section 7. Specifically, the Court of Appeal said in the Stanbic case that “the provisions of section 7…do not even render such a contract or agreement unenforceable between the parties since all they do is to prevent performance, settlement or payment of due financial obligations of the parties thereunder, through and by or on the authority of the public institutions named.” Clearly, the court’s decision in the earlier Stanbic case and its decision in the case under review are totally irreconcilable on the same issue of non-registration of a registrable contract with the NOTAP. Although the Stanbic decision was cited to the Court of Appeal in this Sahelian Energy case, the court did not follow its earlier decision or consider it if only for the purpose of distinguishing the earlier decision on the facts. In any case, a literal construction of section 7 of the NOTAP Act and indeed the entire statute results in the inevitable conclusion that the court’s decision in the Stanbic case on the effect of non-registration of a registrable contract is the correct of the two decisions. Given that the NOTAP Act imposes no consequence on the validity of a registrable contract, there is no legal basis for a court to introduce such a consequence, particularly one as significant as setting aside a foreign arbitral award arising out of an arbitration conducted based on the contract.
In the Sahelian Energy case the Court of Appeal made the point that enforcement of the monetary award will be a direct violation of section 7(1) of the NOTAP Act because the award is against the public policy of Nigeria. This decision gives the impression that the only way the monetary award could have been enforced is by way of the means stated in section 7(1) of the NOTAP Act, which is not the case. Section 7(1) of the NOTAP Act only applies to payments originating from Nigeria and going outside Nigeria by or on the authority of the Federal Ministry of Finance, the Central Bank of Nigeria or any licensed bank in Nigeria. Meanwhile, assuming the foreign award had been recognized and enforced by the court as a judgment of the court, it is settled law that as a money judgment it could have been enforced by way of a Writ of Fieri Facias, Garnishee proceedings, Judgment summons or a Writ of sequestration. None of these enforcement methods has anything to do with payments going abroad by or on the authority of the Federal Ministry of Finance, the Central Bank of Nigeria or any licensed bank in Nigeria, since Sahelian Energy is not any one of such entities. In closing, two points are important to note. First, as recognised by section 52(2)(a)(viii) of the ACA and the decision of the High Court of Ogun State in ZENITH GLOBAL MERCHANT LIMITED v ZHONGFU INTERNATIONAL INVESTMENT (NIGERIA) FZE & ANOR (2017) 7 CLRN 69, every arbitral award derives its validity from the law of the seat of the arbitration that produced the award and it is the courts of that country that have supervisory jurisdiction over the arbitration. For this reason, there is an argument that it is judicial interference for a non-seat court to set aside or invalidate an award on the basis of a law that is not the law of the seat. This is a power reserved for the court of the seat of arbitration. Secondly, both the Supreme Court and Court of Appeal in Nigeria have repeatedly stated that the judicial policy towards arbitration in Nigeria is for arbitral awards to be upheld and enforced, having regard to the fact that arbitration is a mode of voluntary dispute resolution adopted by parties. Against this backdrop, the question is whether such a judicial policy accommodates the setting aside of a foreign arbitral award on the basis of non-compliance with the NOTAP Act when the Act itself does not provide or suggest any such consequence? Perhaps the Supreme Court will one day get the opportunity to consider this and take a determinant position on the issue.
MOFESOMO TAYO-OYETIBO, FCIArb1
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Mofesomo Tayo-Oyetibo is a Partner at the law firm of Tayo Oyetibo LP and heads the Firm’s arbitration practice.