Opinion ID: 6498714
Heading Depth: 3
Heading Rank: 2

Heading: The Nigerian arbitration and court actions

Text: In October 2011, an arbitral panel convened under the PSC awarded Esso nearly $1.8 billion plus interest based on its finding that, beginning in December 2007, NNPC had overlifted tax and royalty oil and improperly reduced the cost oil owed to Esso. 5 In so doing, the panel rejected NNPC’s argument that the panel lacked jurisdiction over the dispute because it concerned only the amount of taxes owed under Nigerian law, 5In accordance with the PSC, the arbitral panel included three individuals: Charles N. Brower, a U.S. national and a U.S.-appointed judge on the Iran–United States Claims Tribunal, named by Esso; Professor Paul Obo Idornigie, a Nigerian national and professor of law at the Nigerian Institute of Advanced Legal Studies, named by NNPC; and L. Yves Fortier, the former Canadian ambassador to the United Nations, named jointly by Judge Brower and Professor Idornigie to serve as president of the panel. 10 which NNPC urged was inarbitrable. The panel concluded instead that the dispute was wholly contractual in nature—as well as “triable civilly” and “capable of being compromised by way of accord and satisfaction”—and therefore arbitrable under the terms of the PSC. 6 App. 258. Before the panel issued the Award, Nigeria’s tax authority, the Federal Inland Revenue Service (“FIRS”), initiated an action in Nigerian trial court seeking to enjoin the arbitration. In March 2012, the trial court decided—contrary to the arbitral panel’s determination—that the entire dispute was inarbitrable. The court emphasized that “any determination of the issues raised” would necessarily affect FIRS’s ability to assess and collect taxes and would “adversely affect the revenue” that had accrued or would accrue to the Nigerian government. 7 App. 521. Concurrently with the FIRS action and after the arbitral panel issued the Award, NNPC moved the Nigerian trial court to set the Award aside. In May 2012, the trial court granted NNPC’s request and nullified the entire Award on the ground that it was improperly granted, again concluding that the dispute involved inarbitrable tax issues. Esso appealed both trial court decisions. In July 2016, the Nigerian Court of Appeal affirmed in part and reversed in part the trial court’s ruling in NNPC’s set-aside action. It agreed that the arbitral panel did not have jurisdiction over issues relating to the proper calculation of Esso’s tax liability (and therefore any part of the dispute concerning overlifted tax oil), but it found those tax issues severable from any claims grounded strictly in the PSC. As a result, it reinstated the Award insofar as the arbitrators had found NNPC liable on the severable 6Professor Idornigie dissented from the Award, concluding that the dispute was inarbitrable because, “although th[e] Arbitral Tribunal ha[d] the jurisdiction to interpret the provisions of the PSC and relevant tax legislation,” it lacked jurisdiction to resolve disputes “connected with or pertaining to the taxation of companies.” App. 366, 410. 7The trial court’s decision in FIRS’s favor resulted in only declaratory relief because the arbitration had concluded and so there was no longer a proceeding to enjoin. 11 contract-based issues—principally, the preparation of tax returns and calculation of lifting allocations. Less than a year later, the Nigerian Court of Appeal similarly affirmed in part and reversed in part the trial court’s ruling in the FIRS action. It reached substantially the same result as it had in the first appeal, with a twist: whereas the first appeal decision characterized the arbitrated dispute as fundamentally tax-related but containing certain severable contract-based claims, the FIRS appeal decision determined that the dispute was “basically contractual in nature,” containing only three tax-related claims that lay outside the arbitral panel’s jurisdiction. App. 749–51. It thus reaffirmed the set-aside of the Award as to the tax-related claims and attendant damages but did not purport to disturb what remained. Appeals from these two Court of Appeal judgments remain pending before the Supreme Court of Nigeria as of this writing, so far as this panel has been advised. Separate from the set-aside action and the FIRS action described above, Esso initiated two additional proceedings. First, Esso brought a direct action against NNPC in Nigerian trial court on the same substantive claims as were adjudicated in the arbitration, apparently to preserve its claims in the event that the Award was set aside after the applicable statute of limitations had run. In April 2016, the trial court dismissed the substantive action as an abuse of process, concluding that it was improperly duplicative of NNPC’s set-aside action. Esso’s appeal in that case appears still to be pending. Second, Esso filed an action in Nigeria’s specialized tax tribunal, in which it disputes FIRS’s tax assessments under the PPT Act. 8 To our knowledge, this tax action also remains unresolved. 8The record is unclear as to whether, in the tax tribunal, Esso is seeking a refund from Nigeria for the tax oil allegedly overlifted by NNPC. 12