THE USE OF ALTERNATIVE DISPUTE RESOLUTION IN THE SETTLEMENT OF OIL & GAS DISPUTE IN NIGERIA

Author: O. M. Atoyebi S.A.N FCIArb. (U.K.)., Contributor: CHIBUEZE JAMES

September 11, 2023
2:29 pm

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The oil and gas industry is the backbone of the Nigerian economy and contributes significantly to its growth. However, disputes are unavoidable in the oil and gas industry due to the plethora of contractual arrangements and the nature of the activities that take place.

Traditionally, conflicts in the oil and gas industry in Nigeria are environmental related and usually addressed by litigation, in which procedurally a court would determine the liability of a party for environmental damage and compensate victims of such damage based on the evidence presented.

However, there are considerable range of challenges confronting parties who may desire to adopt the litigation method in resolving their oil and gas disputes, especially in claims relating to environmental pollution cases[1], they include; Locus Standi, Delay in pursuing court litigation, Lack of confidentiality, High litigation expenses and Limitation of time.

These challenges have given rise to Alternative dispute resolution (ADR) strategies which have grown in popularity as trials have become more expensive and time-consuming. In recent years, it has been used to resolve environmental conflicts.[2] Furthermore, Parties to Oil and Gas contracts often resort to the use of alternative dispute resolution (ADR) processes whenever disputes occur in business agreements, especially arbitration which is an established and significant feature in such agreements[3].

Alternate Dispute Resolution (ADR) is preferable to litigation because the oil and gas industry involves significant capital investment from foreign investors who are unlikely to agree to resolve disputes in Nigerian courts. Furthermore, due to the sophisticated contractual agreements involved in the Oil and Gas industry, foreign investors are hesitant to submit such contractual disputes to the jurisdiction of the host country’s judicial system, preferring instead to resort to arbitration to settle disputes swiftly and timeously.

Thus, this article examines the importance of alternate dispute resolution in the oil and gas industry in Nigeria. Additionally, it delves into the legal framework governing the various alternate dispute resolution mechanisms in Nigeria.

ALTERNATE DISPUTE RESOLUTION MECHANISM IN THE OIL & GAS INDUSTRY.

In the oil and gas industry, there are different Alternate Dispute Resolution mechanisms available to parties involved in oil and gas contracts. These mechanisms include;

1. Negotiation: This is a problem-solving process in which the parties to the contract voluntarily discuss their differences and attempt to reach a joint decision on their common concerns.[4] This mechanism allows for the parties in dispute to resolve their dispute without the interference of a third party.

2. Mediation: Mediation involves a neutral third party who facilitates discussion between the disputing parties. The mediator helps the parties to reach an amicable settlement and does not impose his own view or decision on the parties.

It has been argued that mediation should be effective in the oil and gas industry because most disputes within the industry are purely commercial disputes between equally commercial parties.[5] In this instance, a mediator acts solely as a facilitator and strictly refrains from providing any sort of evaluation or recommendation regarding either party’s case during the negotiation process.

3. Conciliation: This involves a situation where a third party, known as a conciliator, is obliged to use his best endeavour to bring the parties in dispute to a voluntary settlement of their disputes. It offers another opportunity for parties in the oil & gas industry to resolve their dispute, as conciliation is the adjustment & settlement of dispute in a friendly non-antagonistic manner.

4. Arbitration: Arbitration is the reference of a dispute or a difference between not less than two parties for determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction.[6] It is a form of adversarial dispute resolution in which the parties appoint an arbitrator or arbitrators to resolve their differences. In the oil and gas industry, parties in dispute can choose to refer their case to an arbitral tribunal for resolution. Reference to arbitration is of three types which are;

a. Voluntary arbitration: Where parties agree to refer their present or future dispute to a tribunal of their choice instead of a court of law.

b. Arbitration by the order of the Court: Where the court is empowered to refer any matter before it to arbitration.

c. Statutory or compulsory arbitration: Where arbitration is usually imposed by a statute.

LEGAL FRAMEWORK FOR ARBITRATION IN THE OIL & GAS INDUSTRY IN NIGERIA.

The Nigerian government has made several efforts to establish arbitration as a mechanism for resolving disputes in various sectors of the country’s economy, including those arising from the oil and gas industry. The following are the relevant laws in Nigeria for the use of arbitration in the settlement of oil and gas disputes.

Arbitration and Mediation Act 2023.

This Act applies throughout the federation, as it is the governing law on commercial arbitration in Nigeria. This law, in a sense, provides methods for parties to come up with a legally binding arbitration agreement, as well as how arbitration may begin and end, and a clear procedure for forming an arbitration tribunal.

The law is aimed at providing a unified legal framework for the fair and efficient settlement of commercial disputes by arbitration and mediation and ensuring the applicability of the convention on the Recognition and Enforcement of Arbitral Awards (The New York Convention). It is important to note the significant development introduced by this law, such as provision for emergency arbitrators where a party seeks urgent relief,[7] discretionary power of the arbitral tribunal to join additional parties in an arbitral proceeding,[8] power of the arbitral tribunal to grant interim measures such as maintain status quo while the dispute is being resolved,[9] The time between the start of arbitration and the issuance of the award is expressly excluded from the calculation of the enforcement limitation period for arbitral awards in Section 34 of the AMA.

Nigerian Investment Promotion Act 2004[10]

This legislation governs all forms of foreign investments. The Act recommends settlement of investment disputes in some sectors which includes Oil and Gas Industry in Nigeria.

Section 26 of the Act provides that when a dispute or disagreement arises between an investor and the federal government regarding the mechanism of settlement to be used, the rules of the International Centre for the Settlement of Investment Disputes will apply. Also encourages the use of arbitration to settle disputes in the oil and gas industry in Nigeria.

The Petroleum Act 1990[11]

The Act stipulates that any questions or disputes arising from it shall be resolved through arbitration. However, Section 11 of the Act expressly mentions arbitration as a method of dispute resolution. The above is an indication that arbitration is legally permissible in the settlement of dispute emanating from oil pipeline transactions. It’s important to note that a dispute relating to the Minister of Petroleum and a licensee shall be submitted to arbitration.

The Oil Pipeline Act 2004[12]

The Act provides that where there is a dispute between the Minister of petroleum and a licensee and such dispute cannot be resolved by mutual agreement the dispute can be referred to arbitration, this is pursuant to Section 17 (5) of the Act. The Act made no mention of litigation as a method of resolving disputes in the oil and gas industry.

The Nigerian Liquified Natural Gas (Fiscal Incentives, Guarantees & Assurances) Act 2004[13]

The enactment of this Act demonstrated the willingness of the Nigerian government to attract foreign investors in the oil and gas industry for the benefit of the country’s overall development. By Section 22 of the Act, where there is a dispute between a foreign investor and the Nigerian government, such dispute is expected to be settled amicably, if settlement fails, it shall be submitted to ICSID arbitration within 90 days which the parties failed to have an amicable settlement of the dispute.[14]

The above listed are the effort of the Nigerian government to give a comprehensive alternate dispute resolution legal framework that could be used to improve the harsh effects of activities of oil companies in the industry. The laws, in one way or another provide a measure to cushion the effect of the plight of host communities.

RATIONALE FOR USE OF ALTERNATE DISPUTE RESOLUTION IN OIL & GAS CONTRACTS.

A major reason for the enactment of the laws to regulate the resolution of disputes between the contracting parties is to ensure the sanctity of their contract. However, several factors contribute to the use of arbitration in the oil industry for dispute resolution. Among other things, the technical nature of the oil and gas industry necessitates the use of arbitrators with particular expertise in the field, which may not be found in a regular courtroom.

In addition, high-level sophisticated contract agreements are used, which are specially drafted by professionals in the oil and gas industry, and requires professional and expert interpretation as well as dispute resolution.

Furthermore, dispute resolution through litigation is hampered by undue delays caused by courtroom congestion and unreasonable adjournment of cases. Oil-bearing and host communities being dissatisfied with the way and manner the compensation matters are handled often resort to court action to coerce the oil and gas prospecting firm to pay. Yet their dreams are not always achieved, consequent upon the long time it takes a court to decide a compensation case.[15]

CHALLENGES OF ARBITRATION IN OIL & GAS INDUSTRY

There are several challenges to the use of arbitration in Nigeria’s oil and gas industry. These concerns must be addressed urgently in order not to discourage disputing parties in the oil and gas industry from using arbitration as a dispute resolution mechanism. These challenges include;

1. Absence of power of enforcement of arbitral award which would likely lead to protracted litigation;

2. One of the parties may not be able to attend arbitral proceedings outside of Nigeria, which is typically the case in international arbitration in the oil and gas industry. It may be necessary for parties to go to court to have the location of arbitration decided for them if they are unable to come to an agreement;

3. Another significant obstacle to the development of arbitration in Nigeria is the deeply rooted culture of litigation; and

4. The process of impeachment of an arbitral award may well result in lengthy court proceedings, making arbitration appear less effective.

CONCLUSION

The preceding has revealed that there is a legal framework in Nigeria for successful alternate dispute resolution in the oil and gas industry. The Nigerian government has made significant efforts to encourage arbitration in the oil and gas industry through various legislations; however, many challenges remain to slow down the use of alternate dispute resolution mechanisms in the country; despite the challenges identified in this paper, there are still bright prospects for arbitration in the oil and gas industry. For the parties in an oil and gas dispute to resort to arbitration as a means of settlement, an arbitration clause must be inserted into their oil contract, and if inserted, an arbitration clause has an independent and separate life span from the main contract into which it was inserted, as a matter of principle and judicial authority.[16]

[1]Enobong Mbang Akpambang, “Legal Analysis of Environmental Oil Pollution and Remedies in Nigeria,” Unpublished Doctoral Thesis Submitted to the Faculty of Law, Ekiti State University, Ado Ekiti, Nigeria, 2016, pp. 363-370.

[2] Andrew, J.S. ‘Examining the Claim of Environmental ADR: Evidence From Waste Management Conflicts in Ontario and Massachusetts’ [2001] Journal of Planning Education and Research 21, 166–183

[3] D. Nwaogu, F. Onomrerhinor & D. Nicholas, ‘ An Examination of the Legal Frameworks on Arbitration in the Nigerian Oil and Gas Industry’ International Journal of Business & Law Research

[4] Abdulrasheed Badmus, ‘Alternate Dispute Resolution Mechanism & Procedure’ accessed at https://trustedadvisorslaw.com/alternative-disputes-resolution-mechanisms-and-procedure.

[5] Matthew Izuchukwu, ‘Arbitration in the oil & gas industry in Nigeria: prospect & challenges’ accessed at https://www.academia.edu/8955552/ARBITRATION_IN_THE_OIL_AND_GAS_INDUSTRY_IN_NIGERIA_PROSPECTS_AND_CHALLENGES

[6] G Ezejiofor, ‘The Law of Arbitration in Nigeria’ (Ikeja: Longman Nigerian Plc, 2005) p.3

[7] Section 16 of the AMA

[8] Section 40 of the AMA

[9] Section 20-29 of the AMA

[10] Cap N117 LFN, 2004

[11] Petroleum Act, Cap P10 LFN 1990

[12] Oil Pipelines Act, Cap ) 07 LFN 2004

[13] Cap N38 LFN, 2004

[14] Ibid, section 22.

[15] C Jack Osimiri, ‘Arbitration As a Conflict Resolution Approach to Oil Spill Compensation in Oil Producing Communities of River State, Nigeria’ International Journal of Advanced Legal Studies and Governance, vol.2 No. 1 (2011) p. 23

[16] K.S.U.D.B v. Franz Construction Limited. {1990}, 4 NWLR (part 142) P.33

THE USE OF ALTERNATIVE DISPUTE RESOLUTION IN THE SETTLEMENT OF OIL & GAS DISPUTE IN NIGERIA

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