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In this interview, Isaac Ibikunle, Harvard Law School-educated expert on international arbitration and litigation, speaks on recent cases of arbitration involving Nigeria and some foreign investors. He spoke to Jide Akintunde, Managing Editor, Financial Nigeria publications.

Jide Akintunde (JA): In recent years, we have heard of cases of arbitral awards against Nigeria arising from disputes with foreign investors in the country. First, how common are this type of awards against other sovereigns around the world?

Isaac Ibikunle (II): Arbitral awards are quite common. They arise when countries fail to give due attention to the rule of law in handling foreign investments. For instance, the failure of Argentina in the ‘90s to follow due process of law in terminating some foreign investments in the country resulted in a suite of arbitral awards against it. Spain has recently suffered the same fate because of the way it managed some foreign investments in its renewable energy industry. These two examples cut across the world’s development regions and different eras.

JA: The latest case against Nigeria is the ongoing seizure by Zhongshan Fucheng Industrial Investment Co. Ltd. After the uproar that greeted the court pronouncement, public awareness of the case has died down. What is the update on this case and where might it end?

II: According to the publicly available records, Zhongshan has continued its enforcement efforts. It has attached Nigerian real properties in the US and the UK. The intermediate appellate courts in the two jurisdictions have affirmed the attachment rulings. Zhongshan has also attached Nigerian presidential jets in France. It is making similar efforts in Belgium, Canada, Singapore, and the British Virgin Islands.

On where it might end, there are two possibilities. One possibility is that Nigeria will appeal the attachment rulings up to the apex courts in the respective countries where their law permit. For instance, Nigeria has secured a stay of execution order from the US Court of Appeals on the ground that it intended to appeal to the US Supreme Court.

But what is the possibility that Nigeria will be successful in resisting the award executions? The answer lies both in the facts emanating from the parties and the law of the jurisdictions where the enforcements are pending.

For instance, unlike in Nigeria, the appeal to the US Supreme Court in this case is not as of right. The US Supreme Court may refuse to entertain the appeal. If it does refuse to hear the appeal, it means that the US Court of Appeals’ decision affirming the attachment of Nigeria’s crude oil funds in the US will stand.

Also, with respect to France, based on the statement from the Nigeria’s Federal Ministry of Justice, the Nigeria’s reason for resisting the attachment of the presidential jets is that the assets are sovereign assets and thus enjoy immunity. Whether this argument will succeed in law will ultimately depend on Nigeria’s ability to convince the courts that the Nigerian assets in question are used for noncommercial sovereign purpose – and not for commercial purpose. This is because under international law, a country is generally immune from the jurisdiction of foreign courts, including from the attachment of its assets for the purpose of satisfying an award. However, this immunity is not absolute especially in jurisdiction such as the UK, the US, France, and even Nigeria.

A State loses the immunity if the award creditor demonstrates that the State assets were at the material time used for commercial purpose as opposed to noncommercial governmental purpose. In the France case, it was represented that two of the Nigerian presidential jets were put on sale at the time of attachment. The Nigerian success in that case will ultimately depend on whether these facts are true, and if they are, whether the particular facts of the sale constitute commercial or noncommercial sovereign purpose.
 
It is interesting to note that, unlike in the notorious P & ID case, Nigeria is not exploring (at least not to my knowledge) an allegation that the contract resulting in the award and the arbitral process were tainted with fraud or other illegalities. This ground is one of the most potent means a sovereign resists an award these days. Ogun State, the subnational counterparty to the contract, had terminated the contract with Zhongshan on the grounds that the company had defrauded the state. So, it’s not clear why this argument is not being explored. Perhaps there is no evidence to substantiate the claim.

The other possibility is that Nigeria will settle with Zhongshan such as by agreeing on the duration and other terms for the payment of the award debt. In the past, Nigeria had amicably resolved its investment disputes successfully and even avoided adverse award. For instance, Nigeria successfully settled investment disputes filed by Shell in 2007 and 2021, leading to the discontinuance of the cases.

JA: Is this an unfortunate case or it is an indication of ingrained issues in Nigerian public governance and resolution of investment/contractual disputes in the country?

II: It is a mix of both. Nigeria could have avoided this incident if the proper steps had been taken. If the facts out there are true, Ogun State ought to have followed due process at the time of terminating the contract with Zhongshan. For instance, it could have investigated the allegation of fraud in a fair and civil manner, and depending on the outcome of the investigation, followed the legal process for assessing the value of Zhongshan investment in the free trade zone, and considered compensating Zhongshan as permissible under the investment treaty between Nigeria and China. Had the subnational entity followed this process, Zhongshan would have had a slim chance of winning the arbitration.

Essentially, this case is an indication that Nigerian leaders ought to pay more attention to rule of law in their dealings.    

JA: There are other pending international arbitrations involving Nigeria and Korean National Oil Corporation, Eni, and Nigerian Agip. Would you like to provide factual highlights of the cases?

II: Based on the limited information available in the public domain, Eni entities and Agip sued Nigeria for the latter’s alleged refusal to convert the claimants’ oil prospecting licence, OPL 245, into an oil mining licence on the grounds that the OPL 245 purchase by the claimants in 2011 from Malabu Oil & Gas was a product of corruption. Eni and Agip denied the allegation of corruption. The proceedings have been adjourned several times based on the agreement of the parties. A few months ago, the Minister of State for Petroleum Resources, Mr. Heineken Lokpobiri, reportedly said that the parties “have resolved all the issues”.

If this account is true, it means that the parties will discontinue the arbitration, and this will effectively terminate the risk of another award hanging over Nigeria. In any event, if the arbitration continues, the allegation of corruption, if made out, will tilt the award in favour of Nigeria. Arbitral tribunals have dismissed several cases on the grounds of corruption. All that Nigeria needs to present is generally a clear and convincing evidence of the corruption. This requirement is even less difficult to satisfy than the proof beyond reasonable doubt required under our domestic law.  

The second case is the most recent case brought by three Korean entities, Korea National Oil Corporation, KNOC Nigerian West Oil Company Limited, and KNOC Nigerian East Oil Company Limited in 2023. While the information about this case is still sketchy, the case might not be unconnected with the revocation of the OPLs 321 and 323 by President Umaru Yar’Adua, and the subsequent termination by NNPC of its petroleum sharing contracts with the Korean companies because of the revocation.

The Korean entities had earlier sought redress in Nigerian courts. The trial court declared the revocation unlawful, but the Supreme Court upturned the judgment on the ground that it was not properly initiated. It is imagined that the Korean entities will ventilate similar claims in the arbitration, including the claim that Nigeria breached its fair and equitable treatment obligations under the investment treaty between Nigeria and South Korea. The critical questions that might engage the tribunal include whether the late President had the power to revoke the OPLs under Nigerian law since he was not the Minister of Petroleum at the time; if the President had the power, whether NNPC could rely on the revocation to validly terminate the PSCs considering that NNPC is an agent supervised by the President; and if NNPC could validly terminate the PSCs, whether NNPC followed the due process. The ultimate answers will depend on how the parties are able to argue their case based on the applicable principles of Nigerian and international law.     

JA: The cases are all linked to the Nigerian oil and gas industry. What is their implication for the industry that has been on a decline and must compete for foreign investment to revive growth?

II: The cases suggest that lack of respect for the rule of law is still an issue in the industry. This may scare investors or increase the cost of financing for the industry as investors may want to factor in the risk when considering an investment in the sector.  

Respect for due process engenders a predictable business environment, which is key to attracting foreign investment. Respect for the rule of law also requires that disputes be properly managed and settled. Nigeria can do better, and it seems the industry regulators are taking the necessary initiatives. For instance, the Nigerian Upstream Petroleum Regulatory Commission has recently inaugurated its Upstream Alternative Dispute Resolution Centre’ Body of Neutrals to help in quick resolution of disputes through mediation and conciliation in the sector to avoid the prolonged and less-business-friendly landscape associated with the industry.   

JA: The arbitral awards and asset seizures against Nigeria have generated cynical reactions, not only against the Nigerian authorities but also against the international arbitration courts. How would you like Nigerians to understand international arbitration?

II: For starters, what is in issue here is investor-State arbitration. Investor-State arbitration is a dispute settlement mechanism designed to ensure foreign investments are protected against unlawful expropriation and other unfair treatments by their host countries. The agreement to engage in this form of arbitration is usually provided for in investment treaties. Nigeria is a party to many of these treaties.

The agreement could also be provided in contracts concluded between a country and a foreign investor. It could also be provided for in domestic law such as in Nigerian Investment Promotion Commission (NIPC) Act. Foreign nationals in Nigeria benefit from this protection just like Nigerians doing business in other countries benefit from it in their host countries. Overall, investment arbitration is a mutually beneficial scheme, although there is a debate on whether it is actually beneficial to capital importing countries like Nigeria.

Entering into arbitration agreement is optional. If Nigeria is tired of it, it is at liberty to renegotiate the existing treaties, amend the NIPC Act and refrain from including the agreement in its subsequent contracts. But it is not as easy as it sounds. The move may scare foreign investors, among other backlashes.

I believe the most important remedy is for Nigerian leaders to adhere to the rule of law in dealing with businesses, both local and foreign. At the time of entering and terminating contracts or issuing regulations that will have an impact on businesses, they must obtain competent legal advice and follow the due process when terminating a contract.

Furthermore, the cost of following the rule of law is cheaper than the cost of fighting a case during arbitration and post issuance of award. The reasons for this are many. First, it is very expensive to defend a case at arbitration. Secondly, save for the assets that are used for sovereign purposes at the relevant time, the award creditor may attach the government assets to satisfy the award. Thirdly, the award creditor may request diplomatic protection from its home State, for instance under Article 27(1) of the Convention on the Settlement of Investment Disputes between States and Citizens of Other States (ICSID Convention) and this has the tendency of rupturing our relations with the home State.

The home State may also initiate State-to-State dispute settlement before the International Court of Justice (ICJ) under Article 64 of the ICSID Convention on the ground that Nigeria breached its international obligation under Article 53 of the ICSID Convention by failing to comply with the award. Participating at ICJ is expensive.

Fourthly, in a case such as the one by Zhongshan, the award will continue to accrue interest until it is fully paid, and Nigeria will incur additional litigation costs in resisting the enforcements. Fifthly, an outstanding award may negatively affect Nigeria’s creditworthiness, its credit rating, and its attractiveness to foreign investors. My final point on this is that, in subsequent cases involving Nigeria, the tribunals may view Nigeria’s history of default in payment of awards as evidence of the country’s potential unwillingness to comply with the subsequent award in determining whether to grant requests for security for costs.

JA: In your recent knowledge-based article, which I am aware has been well received in the industry and in the academic space, you addressed what you called the “nonarbitrability” of tax disputes and treatment of tax-related foreign awards in Nigeria. What were your recommendations, and do you think they will be heeded?

II: The article highlights the erroneous conclusion by the Nigerian Court of Appeal in several cases that tax disputes are not arbitrable under Nigerian law. Through doctrinal and comparative approaches, I demonstrated that the decisions neither foreclose (1) the arbitrability of tax disputes arising from certain domestic and international instruments such as the NLNG Act; nor (2) the recognition and enforcement of foreign awards in at least three identified situations, including disputes pursuant to the NLNG Act and ICSID Convention.

I advised that the courts and tribunals should take the view advanced in the article in holding that tax disputes are arbitrable. It was also expected that practitioners would take advantage of the research work. I am not aware that the Court of Appeal and the Supreme Court have had the opportunity to revisit the matter as there has yet to be a case with similar facts before the Courts. However, I’m happy that some scholars have taken note of the arguments, and some Big Laws/Magic Circle firms have had to consult the paper in making their case in disputes involving Nigerian law before international arbitral tribunals.

JA: What is your career outlook following the completion of your graduate degree at Harvard Law School?

II: I plan to continue my work as a researcher, scholar, and practitioner in the field. I am happy to continue to advise multinationals, States and supranational institutions.