Arbitration in Nigeria: Insights from NNPC v Fung Tai

Case Background

The dispute arose from a contractual relationship between the Nigerian National Petroleum Corporation (NNPC) and Fung Tai Engineering Company Limited (Fung Tai), which included an arbitration clause. This clause was triggered when a disagreement arose, leading Fung Tai to initiate arbitration proceedings. The Arbitral Tribunal ruled in favour of Fung Tai, prompting the company to apply to the Lagos Division of the Federal High Court for the award’s recognition and enforcement.

In response, the NNPC applied to the same court to set aside the award. However, the Federal High Court upheld the tribunal’s decision, ordering the enforcement of the award and dismissing the NNPC’s application. NNPC then appealed to the Court of Appeal, Lagos Division. In its judgment delivered on 7 December 2018, the appellate court dismissed NNPC’s appeal.

NNPC, continuing its efforts to overturn the decision, appealed to the Supreme Court of Nigeria, the nation’s apex court. This appeal was filed on 18 January 2019 and later amended on 1 December 2020. The Supreme Court’s consideration of this case clarified the judiciary’s stance on respecting and enforcing arbitration awards in Nigeria. The case is, therefore, a significant point of reference in Nigerian arbitration law, underlining the judiciary’s role in upholding the finality and integrity of arbitration decisions.

The Supreme Court’s Decision

The Supreme Court, through the Honourable Justice Mohammed Lawal Garba, delivered a judgment that was instrumental in reinforcing the principles of arbitration within Nigerian legal practice.

The court, through Justice Garba, underscored the non-appellate nature of arbitration awards, reaffirming the limited scope of judicial review as established under Nigerian law, particularly in the precedent set by Baker Marine Nig. Ltd. v. Chevron Nig. Ltd. (2000) 12 NWLR (Pt. 681) 393 at 410 as follows:

“The lower court was not sitting as an appellate court over the award of the arbitrators. The lower court was not, therefore, empowered to determine whether or not the findings of the arbitrator and their conclusions were wrong in law. The lower court had to look at the award and determine whether, on the state of the law as understood by them and as stated on the award, the arbitrators complied with the law as they themselves rightly or wrongly perceived it. The approach here is subjective. The court places itself in the position of the arbitrators and not above them and then determines on that hypothesis whether the arbitrators follow the law as they understood and expressed it.”

Furthermore, the Supreme Court offered a critical perspective on misusing the challenge process against arbitration awards. Justice Garba’s remarks highlighted a concerning trend where parties, often in bad faith, engage the legal system to unduly prolong disputes and avoid fulfilling contractual obligations determined through arbitration. He emphasised:

“Parties now, without the requisite good faith, provide for arbitration clause(s) in their contracts, as a way of frustrating and avoiding the due and prompt performance of their obligations under the contract, by challenging the proceedings and awards made by an arbitration tribunal endlessly. That attitude should not only be discouraged but strongly deprecated and penalised by the courts, otherwise, the primary purport of [an] alternative dispute resolution mechanism of arbitration would be eventually subverted in the country, thereby making it unattractive.

The courts in Nigeria should sustain, maintain and strictly apply the general principle that when parties to a contract freely choose to submit any dispute arising from the contract to arbitration and agree on the arbitrator(s) to settle the dispute, they cannot and should not be permitted, when the award is good on its face, object to the decision of the arbitrator(s) either upon points of law or fact merely on the ground that the award did not favour them.”

Analysis of the Decision

The Supreme Court’s analysis and conclusions offer profound insights into the judicial approach to arbitration under Nigerian law.

The judgment solidifies the judiciary’s commitment to uphold the binding nature of arbitral decisions, a critical aspect in maintaining the efficacy of arbitration as a method for resolving disputes. This commitment is evident in the court’s clear stance that arbitration awards are final and not subject to routine appeals. This pronouncement instils confidence in arbitration as an efficient and definitive means of resolving conflicts, reassuring parties that opting for arbitration will not lead to prolonged litigation.

Additionally, the Supreme Court’s approach to minimising judicial intervention aligns with international best practices, enhancing Nigeria’s reputation as an arbitration-friendly jurisdiction. This especially appeals to domestic and international businesses seeking a stable and predictable dispute resolution framework. The court’s judicious attitude promotes an environment conducive to efficient and effective arbitration, benefiting Nigeria’s legal landscape and the broader international business community.

Finally, the court’s critical stance on bad faith challenges against arbitration awards signals a move towards rigorous examination of such challenges. As articulated through The Honourable Justice Garba, the court expressed concern over the trend of parties engaging in litigation, not out of genuine legal necessity but as a tactic to delay or avoid fulfilling obligations determined by arbitration.

The findings in our 2021 Analysis of Arbitration Related Decisions in Nigeria further illuminate the Supreme Court’s strong stance against bad faith challenges to arbitration awards. This analysis reveals that, on average, it takes 10 years from the date of an award to the final judgment at the Supreme Court level, with a significant 74% of these challenges ultimately being unsuccessful. Such delays undermine the principle of arbitration as a speedy and final dispute resolution method and burden the legal system with unnecessary litigation.

The court’s position reinforces the need for responsible and good faith engagement with arbitration, deterring parties from exploiting the judicial system to prolong the enforcement of arbitration awards. This approach aims to preserve the integrity of arbitration and ensure its continued effectiveness as a dispute resolution mechanism in Nigeria.

Conclusion: Reinforcing Arbitration’s Role in Nigeria

The Supreme Court of Nigeria’s decision in NNPC v. Fung Tai Eng. Co. Ltd. represents a significant milestone in the nation’s arbitration practice. The judgment underscores the finality and binding nature of arbitration awards, affirming the limited scope of judicial intervention. It is a clear message to parties and legal practitioners that arbitration, as an alternative dispute resolution mechanism, should be respected for its efficiency and definitive nature.

This ruling paves the way for a more robust and reliable arbitration environment in Nigeria. Courts are expected to play a critical role in sustaining the integrity of arbitration by discouraging frivolous challenges to awards and penalising bad faith actions. This approach will enhance the effectiveness of arbitration and reinforce Nigeria’s position as a conducive environment for resolving commercial disputes. The future of arbitration in Nigeria seems promising, with a judiciary committed to upholding its principles and ensuring its successful application.