TABLE OF CONTENT
CONCEPTUAL CLARIFICATION OF TERMS 15
THE NIGERIAN OIL AND GAS INDUSTRY AND DISPUTE RESOLUTION MECHANISMS 20
THE BENEFITS AND PROBLEMS WITH ICSID ARBITRATION AND ITS IMPLICATION FOR THE NIGERIAN OIL AND GAS INDUSTRY 26
- NECESSARY REFORMS FOR ICSID ARBITRATION TRIBUNAL AND ITS BENEFITS FOR THE NIGERIAN OIL AND GAS SECTOR 32
Figure 1: Cases settled by ICSID Tribunal 28
Figure 2: Disputes decided by Arbitral 31
Figure 3: Cases Registered under the ICSID 33
TABLE OF LEGISLATIONS
| Statutes | |
| Oil Pipeline Act, Cap 07 LFN 2004, Formerly Cap 145 of 1958 | 24 |
| Fiscal Incentives, Guarantees and Assurance Act, Cap N 38 LFN, 2004 | 24 |
| Nigerian Investment Promotion Commission Act, Cap N117 LFN,2004 | 24 |
| The Petroleum Act, Cap P10 LFN 2004, Formerly Act No.51 of 1969 | 24 |
| Conciliation and Arbitration Act, Cap C A18, Laws of the Federation of Nigeria, 2004 | 10, 34 |
| ICSID (ENFORCEMENT OF AWARDS) ACT 1967 | 4 |
| Treatises | |
| Arbitration Rules 9 (1) ICSID 1966 | 30 |
| The Arbitration Rules of the Centre 1966 | 3 |
| UNCITRAL Arbitration Rules 2013 | 5,17, 30, 38 |
AAA – American Arbitration Association
ADR – Alternative Dispute Resolution ARAMCO – Arabian American Oil Company
BIICL – British Institute of International and Comparative Law CCC – Caratube Consolidated Contractors
FDI – Foreign Direct Investment
IA – International Arbitration
ICC – International Chamber of Commerce
ICSID – Investment Center for the Settlement of Disputes
ITCF – Investment Treaty Community Forum
LCIA – London Court of the International Arbitration
LMDCH – Lagos Multi Door Court House
NNPC – Nigeria National Petroleum Corporation
NOC – National Oil Company
OML – Oil Mining License
OPEC – Organization of Petroleum Exporting Countries
PSC – Production Sharing Contract
RCICA – Regional Centre for International Commercial Arbitration, Lagos UNCITRAL – The United Nations Commission on International Trade Law VCLT – Vienna Convention on the Law of Treaties
CSRS – Corporate Social Responsibility and Sustainability
IOCs – International Oil Companies
ABSTRACT
Oil and Gas have been central to the life and wellbeing of the Nigerian society for a time. As investments and commercial disputes inevitably occur in the oil and gas industry, the International Centre for Settlement of Investment Disputes (ICSID) has become the preferred forum for many oil and gas companies all over the world to settle their dispute. This is because the ICSID has been reputed to be an effective and efficient international forum for States and private foreign investors to settle disputes. ICSID settles disputes mainly through arbitral tribunals which are usually constituted on ad hoc basis. As arbitration has received global recognition as a result of its potency and has been considered to be a veritable tool in dispute resolution, this choice of mechanism has been made available at the International Centre for Settlement of Investment Disputes (ICSID) for disputants in the oil and gas industry to utilize. Thus, this paper primarily aims to examine the benefits of ICSID Arbitration to the Nigerian Oil and Gas industry and will explore various cases bordering on oil and gas disputes that have been successfully settled by ICSID. Though the ICSID Convention contains procedural rules which regulate the conduct of arbitral proceedings, several complaints have been made for its rules to be modernized and simplified since most of these rules have been responsible for the retardation of the speedy conduct and conclusion of arbitral proceedings in ICSID. Furthermore, investors in the oil and gas industry have also been concerned about the finality and cost of ICSID proceedings. This paper also critiques some of the articles, rules and regulations that have been inhibiting the smooth and timely delivery of arbitral awards given by ICSID and finally makes recommendations by suggesting reforms that the ICSID Arbitration needs to implement which will be beneficial to the development and growth of investment in Nigeria’s oil and gas industry.
INTRODUCTION:
CHAPTER ONE
- BACKGROUND TO THE STUDY
Generally, the oil and gas industry is one of the most dispute-intensive industries in the world.1 Disputes in the oil and gas industry can arise amongst the investors themselves or between the oil producing community, contracting state governments and foreign investors; due to the myriad of contractual arrangements and nature of activities that are occurring in the upstream, midstream and downstream sector of the petroleum industry.2 Specifically, the problems that usually cause disputes in the oil and gas sector to occur include environmental pollution, expropriation, nationalization, the delimitation of maritime boundary where oil and gas overlap, tax evasion, lack of corporate social responsibility and sustainability (CSRS), local content and unemployment issues to the indigenous population. Others are fiscal policy of government, infrastructural development, double taxation and manpower development etc.
In the Nigerian oil and gas industry, commercial and investment disputes inevitably occur also. Our oil and gas sector is the mainstream of the Nigerian economy with more than eighty percent of the country’s revenue earnings coming from this sector.3 So, any dispute envisaged in this sector ought to be urgently handled with appropriate interest and in a professional manner. This is why proactive and reactive measures for resolving these disputes has been greatly desirable. Preferably, disputants in the oil and gas industry would rather use a dispute resolution mechanism that is different from the traditional litigation method to avoid the long, strenuous and costly process of court. The dynamism of our oil and gas industry has drawn disputing parties to alternative dispute resolution methods like arbitration, mediation, conciliation, negotiation etc. Though dispute resolution methods are provided for in our national laws, it is more common for disputants in the oil and gas industry to submit themselves to international commercial arbitration.4 This is firstly because arbitration has been considered to be a potent and veritable tool for dispute settlement in
1 Temitayo Bello, ‘Dispute Mechanism in Petroleum Industry: An Overview of Arbitration Frontiers’ Babcock University: School of Law and Security Studies [2017] (29) (10) 26
2 Ibid.
3 Elizabeth Soriola ‘Top Features of Nigerian Oil Production Today’ LEGIT [2018] (2) (1)
4 Temitayo Bello, supra note 1
the petroleum industry and has received global recognition.5 Furthermore, due to the nature of investments in the oil and gas industry, there are several factors that have warranted the use of arbitration for dispute resolution in many oil and gas contracts. These include lack of specialized technical knowhow, inexperience in operations of IOCs, cross border oil and gas fields and the complex nature of the construction of oil and gas contracts. Secondly, disputants in the oil and gas industry would rather seek resolution from international tribunals than in their national state because they believe the process of the enforcement of arbitral awards are more complex in their domestic courts than in international tribunals.6 This is why international arbitration has gained more popularity for disputants in the oil and gas industry. As a result, the International Center for Settlement of Investment Dispute has become a preferred forum for the settlement of investment disputes in the oil and gas industry all over the world.
Nigeria has adopted ICSID Arbitration since after its ratification in 1967 to settle all investment related legal disputes in the industry.7 Conventionally, many governments were under the assumption that entering into arbitration agreements would put them in a position where their sovereignty will be derogated, as they believe that arbitration agreements would leave room for their power to be diminished, since they would need to compromise their interests conferred to them in the petroleum industry.8 However, ICSID is gradually eliminating this barrier and rather provides facilities for investment disputes between host government and foreign investors and enhances the socio-economic development of the country by harnessing resource wealth through arbitration as a result of the conflict between government and oil companies.9
Even though ICSID arbitration has been considered to have contributed to the development of the rule of law and the creation of a favorable investment environment, there are however some fundamental issues of concern which has been inhibiting the frequent use of ICSID Arbitration in settlement of disputes in Nigerian oil and gas sector. They are as follows10 the lack of appointment
5 Temitayo Bello, ‘Dispute Mechanism in Petroleum Industry: An Overview of Arbitration Frontiers’ Babcock University: School of Law and Security Studies [2017] (29) (10) 4
6 Emmanuel Ekpenyong, ’Procedure for Recognition and Enforcement of Arbitral Awards in Nigeria’ Mondaq Ltd
[2018] (1) (2) <https://www.mondaq.com> assessed 10 July 2020
7 Temitayo Bello, supra note 1
8 Temitayo Bello, supra note 1 p 27
9 Temitayo Bello, supra note 1 p 30
10 Konstantin Volkov, ‘The Necessity of Reforms within the Arbitration System under The ICSID Convention: Myth or Reality?’ Global Journal of Politics and Law Research [2018] (6) 94) 50-53
of arbitrators in a timely manner, the challenges that routinely accessioned suspension or disqualification of arbitrators, the problem of how to fast-track arbitrators’ procedure, challenges associated with allocation of costs and timely rendering of an arbitral Award etc. Some of these are concerns that are often discouraging the disputing parties in the oil and gas industry from using ICSID and these issues will be the focal point of this research. There have been efforts made to address the above issues to improve the ICSID Arbitration process for disputants in the oil and gas industry. For instance, the Centre employed more expert arbitrators and lawyers, paralegals, administrative legal assistants, dedicated hearing organizers and financial administrators.11 These new staff were also given internal training, so that the parties in the oil and gas industry will be reassured that any investment disputes they bring to ICSID,12 will be handled by qualified arbitrators and the cost of the proceedings will also calculated by qualified financial administrators. ICSID also adopted internal case tracking, financial and case management systems, and upgraded their technological devices that they utilize for their cases all in a bid to ensure that they deliver their arbitral awards in an expeditious manner. Although their efforts to improve their arbitration system were praised by their stakeholders, the case in reality has not changed much. The time consuming and expensive procedure have made disputants in the oil and gas industry question the effectiveness and reasonability of ICSID arbitration as a whole.
Thus, this long essay will examine the key practical issues concerning the activities and operation of ICSID Arbitration in the Nigerian oil and gas sector, as provided in the articles of the ICSID Convention.13 This study will pinpoint some practical reforms which may aid with resolving the issues with ICSID arbitration when it arises in the oil and gas disputes submitted before them. This paper will also discuss the ways by which ICSID reforms proposal will address and benefit both the contracting states and foreign investors of other states who are members of ICSID Convention over several investment disputes as it relates to the oil and gas investment in Nigeria. Some of these reforms would be centered on; (a): Timely appointment of arbitrators, (b): The usual challenges arbitrators normally face, (c): Arbitrators’ conflicts of interest, (d): Access to emergency arbitrators, (e): Fast-track arbitration procedure and so on.
11 Cara Dowling, ‘Developments and Reform of Investor-state Dispute Settlement’ Norton Rose Fulbright [2017] (1) (1) 22-23
12 Ibid
13 The Arbitration Rules of the Centre 1966
STATEMENT OF THE PROBLEM
For many decades, the major problem confronting the timely and cost-effective enforcement of ICSID Convention Arbitration Awards14 in Nigerian oil and gas sector has been the fact that the ICSID Convention contains several procedural rules which needs to be modernized and simplified, since most of these rules are responsible for the retardation of speedy conduct and conclusion of arbitral proceedings. The first concern raised about ICSID arbitration on this point is that the process of the arbitration proceedings is usually slow owing to several factors. One of the main causes for the lack of expeditious arbitration proceedings in ICSID is due to the fact that the arbitrators, who are to arbitrate over disputes brought to them by parties in the oil and gas sector, are usually not appointed in a timely fashion, even with the rules of ICSID stipulating otherwise. Specifically:
Article 3715 provides that;
The Tribunal shall be constituted “as soon as possible” after registration of the Request for Arbitration.16 The Convection also states that in situation where after ninety days of request for the registration of arbitration and the Tribunal is yet to be constituted, the Chairman shall appoint the arbitrators at the request of any of the contracting parties and immediately he finished consulting with the parties.17
This means that, any dispute between the state and investor in oil and gas industry will take a minimum of three months to actualize the inauguration of arbitral tribunal not minding that, there are other several time limitations stipulated in the Arbitration Rules.18 Looking at the above provision, the first problem with the drafting of the provision is that the convention is vague, especially with the use of the language “as soon as possible.” The indefinite stipulation of time for arbitrators to be appointed will discourage disputants in the oil and gas sector from submitting themselves to ICSID Arbitration. This was the case in Process and Industrial Development Limited (P&ID) v The Nigerian Ministry of Petroleum Resources19 where Nigeria lost in the arbitral Award and was liable to pay $9.9 billion US Dollars. Though Nigeria is a signatory member of ICSID convention, the Nigerian Ministry of Petroleum Resources did not approach ICSID to
14 ICSID (Enforcement of Awards) Act 1967
15 The ICSID Convention, Article 37
16 Ibid
17 The ICSID Convention, Article 38
18 Arbitration Rules 1, 2 of the Centre 1966
19 [2019] EWHC 2241 (Comm)
arbitrate over the case even though they may have won their case if ICSID handled it, because of the incessant retarding nature of ICSID, they opted to another arbitration body. Similarly, in Shell Nigeria Ultra Deep Limited v Federal Republic of Nigeria.20 The previous government of the respondent state sought for the discontinuance of the case by utilizing the lacuna created in the ICSID Arbitration Rule 43(1), though not to the interest of Nigeria as was alleged but the present government has resurrected the arbitral tribunal claim to continue with case against the decision of the previous government officials to jettison the case since 2011. It is worthy to mention that, this case has spanned up to 13 years, yet no arbitral award has been delivered since its commencement in 2007. This is a clear testament to the fact that necessary reforms of ICSID Arbitration is eminent to position it to the current reality of the time.
As the strength of any dispute settlement mechanism will depend upon its consistency with the requirements of independence and impartiality, the current ICSID arbitral regime have provided for the removal of arbitrators, if the parties have any concerns that the arbitrator who adjudicated over their case was somewhat partial or gave a biased award. The current arbitration rule provides that the time limits for this challenge must be brought promptly and, in any event before the proceedings are declared closed.21 However the standard applicable to Arbitrators challenged under ICSID Convention is quite stricter than those standards applicable under any other major arbitration rules. For instance, the current rule as specified under ICSID Convention provides that, challenges may be brought where an appointed arbitrator ‘manifestly lacks’ any of the qualities as provided in Article22 and the ICSID Arbitration Rules.23 Whereas, Article 12 (1) of United Nations Commission on International Trade Law (UNCITRAL)24 provides that, for there to be a ground for challenges, the Challenges must have been brought where there are ‘justifiable doubts’ as to the arbitrator’s impartiality or independence and its rule states that the time limit for any challenge shall be brought within 15 days of the notice of appointment or the date the circumstances giving rise to the challenge became known to the Party as provided under Article 13 (1). If we compare the standard prescribed in ICSID arbitration for challenges to be brought against their arbitrators; the ‘manifest lack of competence, character or an independent judgment…’ threshold is not as
20 ICSID Case No. ARB/07/18
21 ICSID Convention, Article 36
22 Ibid. Article 14
23 ICSID Arbitration Rules 9 (1)
24 UNCITRAL Arbitration Rules 2013
lenient as the ‘justifiable doubts’ threshold provided for in commercial arbitration or under the UNCITRAL rules. Furthermore, the rule under ICSID Arbitration25 does not guarantee a firm procedure for filling challenges against arbitrators. The reason is because proceedings are automatically suspended under their Arbitration Rule,26 once a challenge is being brought. This rule is open to abuse as it can serve as a means for one of the disputing parties to employ a delaying tactic and thereby prolong the arbitration proceedings which might frustrate the other disputing party; as it is until a decision is taken in case of a challenge, before the main arbitration proceedings can continue. In ConocoPhillips v Venezuela;27 Venezuela filed six separate requests to disqualify an arbitrator over the course of five years. This was despite the fact that all the six challenges were dismissed for lack of merit. However, the arbitral proceedings were automatically suspended for a 13 months period.28 There has not been any effort made by ICSID to make changes to this rule in order to curb disputing parties from abusing the provision to their advantage. The provision thus needs to be amended so that it is not susceptible to abuse by the disputing parties, and a clear procedure needs to be included in their rule so that the disputants in the oil and gas sector are able to file their challenges with a specific procedure so that it can be filed in a more expeditious manner.
The ICSID arbitration tribunal has also been criticized for its lack of transparency as a body. Under ICSID Convention Rule,29 it provides that it is only when both parties consent to the publication of their award that their award will be made available to the public. The lack of consistency in ICSID decisions will not also allow future disputants in the oil and gas industry to gauge the chances of their success, especially when awards are not made public for it to be utilized as a precedent.30 Specifically, the details of the award of many Nigerian oil and gas disputes which have been arbitrated by ICSID arbitration can hardly be found online, for example cases like Interocean Oil Development Company and Interocean Oil Exploration v Federal Republic of Nigeria,31and Guadalupe Gas Products Corporation v Nigeria,32 have no available data online as
