By GABRIEL ‘FEMI ADEWARA, BSC, MA, LLB, BL, LLM, MCArb
INTRODUCTION
Pursuant to the Nigerian Gas Transportation Network Code (NGTNC/the Code) launched in August 2020, the then Department of Petroleum Resources (DPR) established Network Code Electronic Licensing and Administrative System (NCELAS). Wherever there is a contractual obligation or need for commercial access to resource-related systems or platforms such as the NCELAS, the dispute must be anticipated. To that extent, adopting policies on dispute resolution mechanisms for investment-related disputes, such as the code has done, can be regarded as a metaphor for the whole of the Nigerian oil and gas sector. Simply put, it is well-known by now that wherever investment goes, dispute follows . Therefore, naturally envisaging disputes regarding commercial access to NCELAS, presumably, led to NGTNC’s copious provisions on Alternative Dispute Resolution (ADR) mechanisms, comprising mainly Expert Determination, Mediation and Arbitration.
NGTNC’S ARBITRATION PROVISIONS
Arbitration is a voluntary dispute resolution mechanism, by parties’ agreement, made to be binding, private and confidential, and to the sideline, the formal court systems, when not mandatory . However, NGTNC’s ADR provisions are somewhat mandatory, despite NCELAS being sub-sub legislation . This relates, first, to the code’s section L(1.1.1) providing for the resolution of only ‘certain’ disputes between the Operator and Shippers and second to section L(4.2.2) emphatically stating that: ‘Arbitrators not appointed within the time limits specified in paragraph 4.2.1 shall at the written request of a party be appointed by the Chartered Institute of Arbitrators (CIArb) UK, Nigerian Branch’ (CAUKNB) This excludes the first and fully registered and recognized ‘chartered’ arbitration institute in Nigeria.
Firstly, the allowance for only ‘certain’ disputes tend to exclude the designated regulator (now MDRA/the Authority) from possible arbitral processes in which it could be a party and also excludes its actions from judicial review, contrary to well-established case law precedents . Secondly, other arbitral institutions’ exclusion neglects scholars’ correct depiction of Nigeria’s ADR and Arbitration ecosystem, which exhibits some constellation of institutions rather than the lone star NGTNC makes CAUKNB to be . Therefore, when reviewed alongside ongoing conventional wisdom, raging nationalism in international arbitration and extant arbitral due process, unearthed by empirical historicism or literature review, DPR/MDRA’s say-so or ipse dixit, in respect of the exclusions mentioned above, cannot stand. This analysis turns next to such a review.
DISREGARD OF CONVENTIONAL WISDOM, RISING NATIONALISM IN ARBITRATION AND NIGERIAN ARBITRAL DUE PROCESS
Conventional wisdom evolved arbitration principles . Ordinarily, adjudicatory processes apply to individuals and legal entities. But for arbitration, Carbonneau aptly stated it: ‘Arbitration is a process that functions in derogation of legality’ . That notwithstanding, arbitration being private and ‘non-legal’ adjudication, party autonomy is exalted above all else. It is always graphically put that ‘the parties can do almost anything’ Therefore, the arbitral tribunal or arbitrator derives legitimacy from the party’s agreement. So also does the arbitral tribunal derive its competence, but only after being constituted or appointed on the basis of the party’s agreement, not prior to.
The importance of the party’s agreement has always rested on the basic common law principle of the sacrosanctity of ‘the contractual right to arbitrate’ It is on this basis that despite the initial contrary winds of opinion, especially in the advanced common law jurisdictions, substantive, rather than mere procedural rights are deemed involved in entering into and concluding an arbitration agreement .
What is Arbitral Due Process?
Due process is quite amenable to being defined because its form and character are closely tied to natural justice. For instance, it is said that many eminent arbitration practitioners somewhat accept due process to be ‘both a precondition of arbitration and the procedural cornerstone of the law. It served as the shield, protecting fundamental procedural rights and was transposed into arbitration because arbitral tribunals issue binding decisions that determine parties’ substantive rights’ .
ADP, now virtually codified by UNCITRAL Article 18, always relate to public policy . This defines the contours of its substantive or fundamental nature, making UNCITRAL Article 18 set out the parties’ right to due process. Article 18 provides for equal treatment of the parties from the very beginning of the arbitral process, that is, from a time that pre-dates even the appointment/constitution of the arbitral tribunal. It also provides for the giving of a full opportunity to each party to present their own case.
As a public policy subject matter, ADP requirements are mandatory, particularly in its natural justice-related, fairness and substantive form. In this connection, Sloane et al. noted that ‘Canadian courts have clarified that the purpose of Article 18 is to protect the party from egregious and injudicious conduct…and is not intended to protect a party from its own failures and strategic choices.’
It is by now well appreciated that arbitrators raise public policy issues when a risk of non-enforcement of the award is perceived. Regional peculiarities are also noticeable in the public policy-based arbitral due process such that what is considered a matter of public policy in one jurisdiction may not be so in another.
As to the integrity or legitimacy of an arbitral proceeding, this is guaranteed only by adherence to the principle of due process. Additionally, parties’ confidence in the arbitral process would thereby be enhanced, more so if the perception of the legitimacy of the arbitral process is high. On these three key elements of ADP, comprising integrity (based on the arbitration agreement), confidence and legitimacy, Carbonneau has this to say:
‘As the references to arbitration widen and arbitration becomes the principal dispute resolution mechanism in more areas, attention increasingly is being directed toward fairness in arbitration. Fairness considerations are inextricably tied to assessments of legitimacy. The fairness inquiry in arbitration takes place at two levels: first, as to the circumstances and content of the arbitration agreement and second, as to the operation and conduct of the arbitral proceedings’ .
This seems to be the basis of the use of what has come to be known as the Fair, Reasonable and Non-discriminatory (FRAND) Test in arbitral proceedings, especially in intellectual property arbitration, where its use has been most effective.
Nigerian Arbitral Due Process
Nigeria being a common law jurisdiction operates its judicial and other adjudicatory proceedings by subscription to the principles of due process. Section 36 of the 1999 Constitution of the Federal Republic of Nigeria (as amended) provides for a fair hearing. And the two sections of the Arbitration and Conciliation Act (2004), Sections 14 and 15 thereof, which constitute the Act’s provisions on ‘Conduct of Arbitral Proceedings’, require the parties to be accorded equal treatment and assured of fair hearing, respectively. Section 14 particularly incorporates, virtually verbatim, the UNCITRAL Article 18.
It has also been correctly stated by some scholars that, as an integral part of Nigerian arbitration, due process, common law, and the doctrine of equity are sources of arbitration law in Nigeria .
PERSISTENT CONVENTIONAL WISDOM, RISING NATIONALISM AND FRAND-TESTING NGTNC’S ARBITRATION PROVISIONS
Conventional wisdom definitely advises constant adaptation of arbitral procedures to changing arbitration environments. The expectation is that issues relating to the efficiency of the arbitral process in terms of negative timeframe, cost and quality of arbitration decisions would be adequately addressed . But the NGTNC obfuscates these issues by its continuing discriminations and disregard of domestic due process.
At another level, nationalism , whether economic or political, disrupts or challenges accepted approaches to dispute resolution with a view to effecting arbitration reforms. In this connection, there are increasingly noticeable initiatives now in Africa focusing on the concept of ‘local pride’ in arbitration, as evident from some recent commentaries. Some commentators state it emphatically that pure economic nationalism has an impact on arbitration through the rule of law or due process as distinguished from political or ideological economic nationalism . The impact seems to be especially real for systems or jurisdictions with the so-called ‘fragile rule of law’ or due process, such as Nigeria.
FRAND-Testing NGTNC’s Arbitration Provisions and the Sole Mention of Chartered Institute of Arbitrators (UK) Nigerian Branch (CAUKNB)
Contrary to the changing attitudes in African natural resource-related arbitration, NGTNC portrays curious parallelism between CAUKNB and the facts and decisions in two Nigerian Intellectual Property (IP) Law cases, Holdent International Ltd v. Petersville Nigeria Ltd and Arewa Textiles Plc & Ors v.Finetex Ltd . These two IP law cases tend to illustrate the parallelism between intellectual property law and NGTNC’s exclusion of other arbitral institutions. They both portray the code as awarding ‘arbitration patent’ to CAUKNB. But by the facts and decisions in the two cases, at best, the patent is granted at the risk of the patentee and without guarantee of its validity by the due process requirements of the general Nigerian arbitration-related laws.
In IP arbitration, for instance, the test of Fair, Reasonable and Non-discriminatory (FRAND) is usually applied in determining the grant of rights to claimants or respondents. FRAND Test presumes the satisfaction of some standard requirements for issuance and implementation of licensing terms of patents . In the context of NGTNC’s grant of sole institutional appointing/nominating rights to CAUKNB, the FRAND test would be a test of consistency with the Nigerian ADP.
This is the kind of risk the code exposes the sole mention of CAUKNB to, as NICArb and any other excluded arbitral institution can be such a third party. The two cases further depict the problematic nature of such IP rights or pseudo rights in terms of generating and applying the right ‘norms regarding what may be fair and reasonable.’
On the basis of all these developments in relation to both domestic and international arbitration, the arbitration provisions of the code, which operate as sub-sub legislation, need be queried and the impugned rights of all Nigerian registered or recognized arbitral institutions other than CAUKNB redressed for failing the FRAND Test.
The Force or Importance of the Arbitration Agreement
Arbitration as a creation of a contract; party autonomy or freedom to contract is key. Any abridgement of this amounts to turning off the tap of freedom . This is why UK’s 1996 Arbitration Act provides for parties’ ability to specify the arbitral institution and arbitrator(s) identity regarding their particular characteristics or qualifications.
That being so, NGTNC discounts the potential force of an arbitration agreement with respect to gas transportation. Since the requirement of due process is deemed a precondition of arbitration, NGTNC inequitably elucidates arbitral procedure by its arbitral institution/arbitrator selection, ahead of the agreement . Such preemptive institutional selection amounts to a deep dive into circumscribing NICArb and other duly registered and recognized arbitration institutions their legitimate arbitral jurisdiction .
But what should become the imbibed attitude by the gas transportation regulator in Nigeria, the MDRA is to view the arbitration agreement as very important right from the very early negotiation stages. In this regard, it can take cues from many African countries now investing more in their upfront ‘legal spend’ based on the adoption of novel rules on arbitration support facilities like Third-Party Funding and government utilization of such initiatives as the African Development Bank’s (AfDB’s) African Legal Support Facility, developed since 2010 for supporting African governments in the negotiation of complex commercial transactions . Such change of attitude and awareness would also equip or strengthen it to identify the appropriate amendments to make to the code.
RECOMMENDATIONS
• The Federal Government of Nigeria should ensure that the proposed comprehensive National Arbitration and ADR Policy currently in the works is infused with nationalistic flavours and should be speedily finalized
• Meanwhile, the Midstream and Downstream Regulatory Authority (MDRA), the governing board of which the Honourable Minister of State for Petroleum Resources, Chief Timipre Silva, inaugurated on Tuesday 19, October 2021, should immediately set in motion the machinery for appropriate self-regulatory amendments to the arbitration provisions of the code, having been so empowered by the Petroleum Industry Act (2021)
• The proposed amendments could also be done through judicial review and by an Act of the National Assembly. The expected nationalistic-flavoured recommendations of the finalized National Arbitration/ADR Policy should be incorporated into the proposed new Arbitration, Conciliation and Mediation Bill yet to be passed by the National Assembly
• The proposed amendments should take cues from how African parties in investment disputes are going more for ad hoc arbitration and use of their own institutions, as both arbitral appointing authorities/nominators and seats.
• The proposed amendments should also aim at redress, both for potential arbitral parties alongside the MDRA on its regulatory practices and for other arbitral institutions in the country and their affiliated arbitrators, other than the CIArb (UK) Nigerian Branch solely named in the code.
CONCLUSION
Having shown clearly that the NGTNC’s arbitration provisions ignored Nigeria’s arbitral due process and failed in the application of the Fair, Reasonable and Non-discriminatory (FRAND) test, it is inescapable that its continuing legitimacy must run on adherence to domestic arbitral due process and local pride in extant institutional/arbitral capabilities. Judged, in this article, by international conventional wisdom and rising nationalism in Africa’s natural resource sector, the discriminatory exclusion of NICArb and the many other arbitral institutions in the country from being institutional appointing/nominating authorities in favour of the CIArb (UK) Nigerian Branch (CAUKNB) needs be queried and redressed.
Judicial review or amendment to the code, correcting CAUKNB’s anomalous holding of a sole and risky patent in arbitration of gas pipeline transportation disputes in Nigeria, would go a long way in accentuating the qualities of NICArb and other recognized arbitral institutions in Nigeria, as calm and competent arbitral institutions, without let or hindrance.
Adhering to Nigeria’s arbitral due process in the way and manner recommended in this article would better facilitate the attraction of investments in the Nigerian oil and gas sector from the four corners of the world in general, as well as speedy, efficient and cost-effective resolution of disputes in the sector, in particular.
