Court Upholds $1.7bn Arbitral Award in Favour of NPDC on Brass, Forcados Assets

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By Alex Enumah

Justice A. Faji of the Lagos Division of the Federal High Court yesterday upheld the decision of an arbitration tribunal, which slammed a whopping $1.7 billion judgment in favour of the Nigerian Petroleum Development Company (NPDC)

NPDCis a subsidiary of the Nigerian National Petroleum Corporation (NNPC)

The arbitration involved the Atlantic Energy Drilling Concepts Nigeria Limited and Atlantic Energy Brass Development Limited and the NPDC.

Atlantic Energy had in August 2015, through their lawyers, Tunde Fagbohunlu SAN, dragged the NNPC to Arbitration over alleged breaches of contract.

NPDC in response, filed a counter-claim for funds due to the government on account of crude oil sales from the Oil Mining Leases (OMLS) 26, 30, 34, 42, 60, 61, 62 and 63 (known as ‘Brass and Forcados assets’) without payment of remittances due. NPDC also sought the recovery of unpaid net approved cash calls in respect of the OMLs.

Delivering judgment, the tribunal on March 5, 2019, upheld the arguments of NPDC’s lead counsel, Prof. Fabian Ajogwu, SAN, and handed down a landmark Arbitral Award of $1.7 billion in favour of NPDC.

The tribunal ordered that Atlantic Energy pay the sum of $1.7 billion to NPDC as the value of the 55 per cent crude oil portion of the federal government taken and sold by Atlantic but not remitted to NNPC.

Dissatisfied, Atlantic Energy (award-debtors) then approached the court for an order setting aside the arbitral award delivered in favour of NPDC on grounds that the Arbitral Tribunal allegedly misconducted itself by wrongfully assuming jurisdiction over NPDC’s counter-claim, and dismissing their preliminary objection to the said counter-claim.

NPDC, at the same time, sought for an order of court to recognise and enforce the arbitral award.

In upholding the submissions of the NNPC’s lead counsel, Prof. Fabian Ajogwu, SAN, Justice Faji in his judgment held that NPDC’s counter-claim in the arbitration was distinct in all material respects from the suit referred to by the award debtors.

According to the judge, as rightly argued by Ajogwu, counsel to NPDC, whilst the claim in suit 701 touched on criminal conversion/ diversion of revenue due to the federation, the counter-claim to the arbitration bordered on breach of the Strategic Alliance Agreement between NPDC and the award-debtors.

Justice Faji, accordingly, dismissed the award-debtors’ application to set aside the arbitral award dated March 5, 2020.

He granted orders recognising the $1.7 billion arbitral award as well as for leave to enforce same as a judgment of the Federal High Court.

At the delivery of the judgment, Shehu Mustapha of Aluko Oyebode announced appearance for Atlantic Energy and Oluyemi Adebo of Kenna Partners appeared for NPDC.

This landmark decision upholds one of the single largest awards ever in a Nigerian arbitration.

Also, it settles the question of the impact of non-payment of signature fees on lifted crude oil as well as the principles of unjust enrichment in crude oil lifting and recovery.

Furthermore, the significance of this Arbitration to Nigeria, which depends mostly on crude oil for revenue generation and economic development is enormous for the Nigerian economy, which is heavily dependent on crude oil revenues.

Analysts believe that the landmark award of $1.7 billion on lost crude oil revenues will strengthen the resolve of the Nigerian government in its drive to recover other lost or stolen crude over the years.