Oil & Gas: English court restrains foreign JOA proceedings in breach of arbitration provision

In The Shell Petroleum Development Company of Nigeria Limited v Sunlink Energies and Resources Limited [2023] EWHC 3135 (Comm), the English Commercial Court demonstrated its willingness to ensure that a joint operating agreement’s arbitration provisions were preserved, and backed by real action by the court for a party seeking to circumvent them.

Background

The claimant, Shell Petroleum Development Company of Nigeria Limited (“SPDC”), and the defendant, Sunlink Energies and Resources Limited (“Sunlink”), were parties to a 2005 Joint Operating Agreement (the “JOA”) concerning oil operations to be conducted under a Nigerian Oil Prospecting Licence.

The JOA contains an arbitration agreement (the “Arbitration Agreement”) stipulating as follows:

“25.2 Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, which cannot be amicably resolved between the Parties (whether in its capacity as a Party to this Agreement or as a Technical Partner) shall be referred to and finally resolved by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce effective at the time notice of arbitration is served, which Rules are deemed to be incorporated by reference into this Clause."

"25.3 The arbitration will be conducted in English in London by three (3) arbitrators. The arbitrators shall be retired judicial figures of standing, or Queen's Counsel practising at the commercial Bar, or similar qualified Solicitors. Where appropriate, the arbitrator's decision shall state a time for compliance with the decision. Each party shall bear its own arbitration costs and expenses, including the costs of its witnesses.” 

Clause 25.1 of the JOA provided that the JOA is governed by the laws of the Federal Republic of Nigeria.

In September 2023, Sunlink commenced proceedings in Abuja, Nigeria, against SPDC seeking over $1 billion in damages for alleged breaches of the JOA, with a claim for interest on those damages at a rate of 21%, and importantly, asserting that the Arbitration Agreement was ineffective and inoperable.

As a result, SPDC sought and successfully obtained an interim ex parte anti-suit injunction (“ASI”) from the English Commercial Court, in September 2023, in relation to those proceedings.

Shortly before the return date for the interim ASI, Sunlink withdrew its challenge to the English court’s jurisdiction, simultaneously indicating that it would take no further part in the English proceedings and noting that it made no concession regarding whether or not the English court had jurisdiction, or an ASI had been appropriately granted.

Issues

At the ASI return hearing, Sunlink resisted the continuation of the ASI by asserting that the Arbitration Agreement was ineffective for the following reasons:

1. The current iteration of the ICC Rules is entitled differently to the set of ICC rules referred to in clause 25 of the JOA;
2. the requirement for arbitrators to be retired judicial figures of standing, or current (then) Queen’s Counsel practising at the Commercial Bar (or solicitor of equivalent standing) is incapable of application and void due to these categories of arbitrators not having been practising Nigerian lawyers; and
3. the JOA raised issues of Nigerian public and economic policy, thereby precluding arbitration.

Decision

As Clause 25.1 of the JOA provides that the JOA is governed by the laws of the Federal Republic of Nigeria, it was accepted by the Commercial Court that Nigerian law was the governing law of the Arbitration Agreement in accordance with the approach of English law in accordance with the Supreme Court’s decision in Enka v Chubb [2021] WLR 4117. The Commercial Court also accepted the expert evidence in respect of Nigerian law that supported the seat of the arbitration being London, failing which the seat would fall to be stipulated by the parties’ chosen arbitrators, or arbitral institution (in which regard the ICC Court had stipulated London as seat).

In this context, the Commercial Court decided that there was no merit in any of Sunlink's arguments in respect of the invalidity and ineffectiveness of the Arbitration Agreement.

1. First, it was held to be irrelevant that the title of the current iteration of the ICC Rules differed from the version referred to in the JOA, as it was plain that the JOA contemplated the use of the ICC Rules in force from time to time.
2. Second, the Commercial Court was not convinced that there was any merit in Sunlink’s argument that the Arbitration Agreement was a pathological agreement incapable of being performed because it called for arbitrators to be retired judicial figures, or current (then) Queen’s Counsel practising at the Commercial Bar or similarly qualified solicitors and such lawyers would not have been practising Nigerian lawyers.
3. Finally, the Commercial Court dismissed the public policy argument as there was no evidence that the dispute was anything other than a high-value commercial dispute stemming from a business contract. It was also observed that the Nigerian court had approved the claimant’s plea for a suspension of the court proceedings based on the Arbitration Agreement, albeit the decision was being appealed by the defendant.

The Commercial Court made reference to the fact that Sunlink, as well as bringing claims in breach of the Arbitration Agreement, had also sought to interfere with the due process of the arbitration by issuing and seeking to have the Nigerian court deal with an application by way of contempt against the claimant and seven of its directors or officers for any part they may have or may play in seeking to have the obligation to arbitrate enforced by the English court.

The Commercial Court granted a final ASI restraining Sunlink from continuing the Nigerian proceedings or taking any further steps in breach of its obligation to arbitrate disputes under the JOA. The injunction included mandatory orders requiring Sunlink to withdraw the Nigerian proceedings.

The Commercial Court’s decision to grant mandatory orders requiring Sunlink to take positive steps to withdraw the Nigerian proceedings follows recent practice adopted in the English Commercial Court. In doing so, the Commercial Court cited the case of RSM Production Corp v Gaz du Cameroun SA [2023] EWHC 2820 (Comm) as an example of the court now being willing to grant anti-suit injunctions in mandatory form.

Comment

The decision is the latest in a series of decisions concerning dispute resolution provisions in JOAs, and related documents. We dealt with some of these issues in our recent Law-Now: Oil & Gas: Drafting for parallel disputes under a PSC, JOA and settlement agreement.

In our previous Law-Now we said, amongst other things, that:

1. In oil and gas transactions it is common for the underlying production sharing contract, licence or concession (“PSC”) granted by the government (or national oil company) to the relevant oil companies to be governed by local law. It may also be subject to ICSID arbitration (or an alternative).
2. As between the oil companies in a joint venture to explore for, develop and produce hydrocarbons under a PSC, such joint venture relationship (as between each other) will usually be structured as an unincorporated joint venture through a joint operating agreement (or ‘JOA’). These usually follow industry specific model forms, which are published by the Association of International Energy Negotiators, Offshore Energies UK and other industry bodies.
3.  JOAs are usually governed by English law, Singapore law, or the laws of one of the United States’ jurisdictions. In turn, in respect of JOAs for operations outside the US or UK, it is also more usual to incorporate a dispute resolution clause that provides for ICC, LCIA or SIAC arbitration, seated in one of the main arbitral seats.

This case is a good example of a JOA which does not follow the structure of the usual model forms, and is also subject to local law. However, the key aspect is that, notwithstanding that the JOA was governed by local law, (i) the seat of arbitration was in a neutral, arbitration friendly, jurisdiction (London, England) and (ii) the choice of law of the Arbitration Agreement (Nigerian law) was a law that recognised that choice of seat.

As a result:

1. The parties could rely on the courts in their choice of seat to protect their choice of arbitration as their dispute resolution forum, and exclude the jurisdiction of the local courts. 
2. As the seat was London, England, the courts of England and Wales were willing to grant anti-suit relief to restrain foreign court proceedings brought in breach of an arbitration agreement.
3. The approach of the English courts to anti-suit injunctions is not limited to prohibiting the continuation of foreign proceedings, it can also compel positive action to undo steps already taken in breach of an agreement to arbitrate.

In this respect:

1. For drafters, the case demonstrates the importance of the law or the seat of arbitration and the law of the arbitration agreement in any joint operating agreement. Careful thought should be given to their relationship, and the extent to which (working together) they will protect the parties chosen dispute forum and exclude forums the parties have sought to exclude.
2. The reach of injunctive relief by the English courts is a strong one. Injunctions, including anti-suit injunctions, can be backed by the power of criminal sanction. Although that might seem far-fetched, the English courts have repeatedly shown themselves willing to back-up including with penal actions – which as London is a major financial centre and transit route will have major implications for many international parties and their directors.