Public Policy Considerations for Resisting the Enforcement of an Award

One fundamental and unique feature of international Arbitration is the rule or rather perceived rule that awards are final and binding and it operates as an estoppel per rem judicata. However, there is obvious frustration when, after what is believed to be a satisfactory hearing and the release of a well-reasoned award, the Award Creditor is unable to execute it because the State Court in the country where enforcement is sought will, on grounds of Public Policy, not grant an enforcement application or because a State Court at the Seat of Arbitration annuls the award.

An Award Debtor has three options open to him after an award is delivered against him:- (1) voluntarily comply with the award (a Pricewaterhouse Cooper survey in 2008 showed 84% of international awards are voluntarily complied with, and another survey by the School of International Arbitration showed 86% of awards are voluntarily complied with) (2). Challenge or appeal the award (3) wait and resist the enforcement. Our focus here is with resisting the enforcement. Several factors make up the grounds for resisting or setting aside of an award both under Section 29 and 48 of the Arbitration and Conciliation Act (the ACA). The provision under Section 48 were adopted from Article 34 of the UNCITRAL Model Law which are similar to Article V of the 1958 New York Convention.

One common ground for resisting an award, especially in the State of enforcement which often times will be the domicile of the Award Debtor or where his assets are situated, is the Public Policy ground which is provided for in 48(b) of the ACA. Public Policy in this context simply refers to matters which the laws of a Sate or State Court have determined to be of such fundamental importance that contracting parties cannot circumvent.

Public Policy issues may be invoked at various stages of the arbitral process and may involve the application of the laws of a number of jurisdictions such as the law of the Seat, the law of the contract, the law of the place of execution of the underlying contract and the law of the State of enforcement. Public Policy grounds can also be invoked by the Award Debtor to resist enforcement under the following pretext: (1) arbitrability of the dispute leading to the award (2). Public Policy and the arbitration process from a procedural viewpoint (3) Public Policy and the substantive law.

1. Arbitrability The New York Convention which is perhaps one of the most prominent international

Instruments for recognition and enforcement of awards provides that an award may be refused if the subject matter of the difference is not capable of settlement by Arbitration under the law of that country where enforcement is sought. This provision is also adopted by the ACA in section 48(b)(i) which provides that the Court may set aside an award if the Court finds that the matter of the dispute is not capable of settlement by Arbitration under Nigerian law. Determination of arbitrable matters differs from jurisdiction to jurisdiction. Generally, in common law jurisdictions such as Nigeria, the Court determines arbitrabilty, while in civil law countries it is the statutes that determine same. Each State decides which matters may or may not be resolved by Arbitration in accordance with its own policies. In most cases Public Policy considerations play a major role in determining the forum for adjudicating such disputes. National enactments and judicial pronouncements are divergent on this. In MITSUBISHI v SOLER (1985) 473 US 614, the United States Supreme Court held that an antitrust claim and a conspiracy claim could both be validly referred to International Arbitration even though Competition law and antitrust claims are matters of Public Policy in the United States. Paradoxically, while antitrust matters may not be submitted to domestic Arbitration in some of the states in the US, the same type of claims may be submitted to International Arbitration. The refusal of the US Supreme Court to allow American domestic Public Policy to determine the scope of arbitrability in an international context was guided by the need of the international commercial system for predictability in the resolution of disputes.

In Nigeria, the issue of arbitrability has resulted in much Litigation such as the case of NIGERIA AGIP EXPLORATION LIMITED v NNPC (2014) 6 CLRN 150-158 amongst others. In FIRS v NNPC (FHC/ABJ/CS/774/11) where judgement was delivered by Hon. Justice Adamu Bello (retired), one of the issues for determination by the Court was whether an arbitral tribunal had jurisdiction to determine the subject matter of Arbitration which deals with Taxation, and whose jurisdiction is conferred on the Federal High Court by the Constitution. Secondly, whether the arbitral tribunal had the jurisdiction to enter a valid award on Taxation of the Defendants which will have a binding effect on the Federal Inland Revenue Service (FIRS) in the interpretation, application and administration of the Petroleum Profit Tax Act, the Deep Offshore and Inland Basin Production Sharing Contracts Act, the Educational Tax Act and the Company Income Tax Act and any other statute for the time being in force in Nigeria. The Court held that the PSC entered into by the parties is essentially regulated by the Deep Offshore and Inland Basin Production Sharing Contracts Act, and others. Consequently, the contracts in this case are a special kind of contract with statutory flavor, thus the contracts come within the purview/jurisdiction of the Court by virtue of section 251(1)(u) of the Constitution relating to Mines and Minerals (including Oil Field, Oil Mining, Geological Surveys and Natural Gas). These matters are still pending before the Court of Appeal for determination. There are also several cases on the Admiralty Jurisdiction of the Federal High Court and that of section 20 of the Admiralty Jurisdiction of an arbitral tribunal such as OWNERS OF THE M.V LUPEX v NIGERIA OVERSEAS CHARTERING AND SHIPPING LIMITED (1993-1995) NSCC, 182. ONWARD ENTERPRISES LIMITED v MV MATRIX (2010) 2 NWLR pt 1179 pg 531.

In Dubai, matters dealing with Real Estate are not arbitrable and international awards rendered in that respect are likely not enforceable there. In BAITI REAL ESTATE v DYNASTI ZARONI (appeal No 14/2012), the Dubai Court of Cassation held that a domestic arbitral award which resolved a dispute on a Land Sale Agreement was invalid because matters pertaining to the acquisition of Land are regarded as Public Order in nature and therefore the Court annulled the award on the grounds of non-arbitrability.

Also in Russia, the question of applicability of a legislative clause providing for the exclusive jurisdiction of Russian Courts over Real Estate matters is still unsettled and appears to be the cause of a controversy between the lower courts and the Constitutional courts. Unlike Dubai and Russia, Real Estate transactions for acquisition of land in Nigeria especially in the FCT vide the regulators (FCDA) standard contractual documentation in form of Development Lease Agreements often contain Arbitration Agreements and a good number of such disputes have been determined by Arbitration proceedings. It is pertinent to point out also that in Nigeria, there is no statutory provision on arbitrability unlike in Dubai, Russia or even neighboring Ghana.

As a practical matter it is always worth keeping in mind the location of the assets of the party against which one seeks an international arbitral award and to ascertain whether the subject matter of the dispute is arbitrable in that State, and of course to select the Seat of the arbitration carefully, because that is generally the jurisdiction where an application for annulment is presented. Therefore in Nigeria, the issue of arbitrability is far from over. Public Policy considerations are likely to further widen the scope of the subject matter. The combined effect of the statutory provisions vis-à-vis 35, 48(b)(ii) and 52(2)(b)(ii) of the Act support this view. Consequently, on grounds of Public Policy, certain matters such as matters relating to fraud and illegality may not be arbitrable. Generally however, Insurance, Commodity contracts, Engineering contracts, Rent Review clauses in Commercial leases, Partnership Agreements, IT application, Assignment and Licensing of IP rights are arbitrable.