Nigeria forfeited a major cost reimbursement award at a World Bank tribunal in October due to what the tribunal described as Attorney General Abubakar Malami’s “odd”, “greatly exaggerated”, “unreasonably high”, and “artificial” claims, PREMIUM TIMES can report.
The award was in relation to an international dispute involving the Federal Republic of Nigeria (FRN) and Interocean Oil Development Company and Interocean Oil Exploration Company, both of which were incorporated under the laws of Delaware and maintain registered offices at Delaware, U.S.A.
The case was brought before the International Centre for Settlement of Investment Disputes (ICSID), an international arbitration institution established in 1966 for legal dispute resolution and conciliation between international investors. The ICSID is part of and funded by the World Bank Group, headquartered in Washington, D.C., in the United States.
Delivering its verdict, the tribunal dismissed some of Nigeria’s claims on cost reimbursement award because of Nigeria’s outlandish, seemingly fraudulent requests for refund of costs. The tribunal thereafter overruled the country even in costs it would ordinarily have legitimately received reimbursements.
The oil companies were represented in the arbitration by Olasupo Shasore （SAN）, Bello Salihu, Oba Nsugbe, and Bimpe Nkontchou.
Nigeria on its part was represented pro bono by Afe Babalola （SAN）, Adebayo Adenipekun （SAN）, Olu Daramola, Oluwasina Ogungbade, Kehinde Ogunwumiju, Ola Faro, and Esther Adenipekun, among others.
The Claimants (Interocean Oil Development Company and Interocean Oil Exploration Company) had in 2013 filed the request for arbitration before the tribunal. They sought for settlement of investment disputes against Nigeria over a contract between the two parties.
The dispute centres on the claimants’ investment in the oil and gas industry in Nigeria, which resulted in the joint venture, ownership, and operation of Nigerian Oil Mining Lease 98 (“OML 98”) and Oil Prospecting License 275 (“OPL 275”) through a Nigerian corporate entity, Pan Ocean Oil Company (“POOC” or “Pan Ocean”).
The joint venture is known as the “NNPC/POOC Joint Venture.” Pan Ocean is the operator of OML 98 and holder of OPL 275. The current lease output is approximately 50,000 bpd of crude oil.
Until 1998, the companies said they were the 100% beneficial owner of the 40% participating interest in OML 98 and related assets (as Pan Ocean) and the government was the owner of 60% of the participating interest (as NNPC).
The subject of the arbitration is the oil companies’ 40% participating interest in OML 98 and OPL 275, created by the joint venture.
The oil companies alleged that they alone invested capital in the Asaboro and Ogharefe fields to make OML 98 profitable. Since July 1998, they allegedly made further investments by discharging the 40% of the contributed operational costs to the production of OML 98 and all other operations of Pan Ocean, including the acquisition of a second rig and the purchase of another oil block, OPL 275, in 2007 or 2008.
Among other claims, the oil companies alleged that since September 1998, they have been denied information about or access to joint venture meetings or joint operating committee deliberations and the accounting, financial, and business affairs or production status of the joint venture operations.
In its claims, the companies requested the tribunal to declare that the Federal Republic of Nigeria breached its obligations to the Claimants under Nigerian law and/or international law, a request to which Nigeria objected.
In its verdict, the tribunal ruled that Nigeria did not breach any of its obligations in its contract with the companies.
Similarly, the U.S.-Based International Centre for Settlement of Investment Dispute headed by William Park ordered InterOcean to pay the federal government $660,129.
Immediately the tribunal gave its verdict, a jubilant Mr Malami released a statement congratulating Nigerians on yet another legal victory.
The AGF described the judgment as another big win for Nigeria in international litigations, adding that gone are the days of connivance to deprive the nation of its resources.
But unknown to many Nigerians, the AGF’s office, on whose table the legal decision on the case stops, had just portrayed Nigeria as a nation of rogue officials who made up costs just to receive reimbursements.
PREMIUM TIMES obtained the full verdict of the tribunal which showed how it dismissed some of Nigeria’s claims for reimbursement on the grounds that they reflected “opulence” and were “artificial”, “odd”, and “exaggerated” – even after the Nigerian government claimed that her demands were “entirely reasonable”.
In their Post-Hearing Brief, the oil companies requested that the tribunal order Nigeria to pay the costs associated with the proceedings, including professional fees and disbursements, “on a full indemnity basis”.
According to them, the Tribunal is empowered by ICSID Rule 28(1)(b), and the principle that succumbing parties pay should apply in international arbitration, adding that their request is in line with the principle of full compensation. They consequently placed the grand total of their cost at $4, 877, 463.12.
In its counter proposition, the Nigerian government requested the Tribunal to reject the companies’ claims and order that they bear the entirety of the costs incurred in the arbitration, adding that should it prevail, it (Nigeria) is entitled to receive reimbursement of its expenses and costs on a full indemnity basis.
The government added that “[a]ll of these factors support an award to the Respondent of all of its costs in this arbitration because the Federal Republic of Nigeria has been forced to go through the arbitral proceedings in order to achieve success, and should not be penalized by having to pay for the process itself.”
The government added that the oil companies’ “misconduct throughout the proceeding warrant an allocation of costs in its favour”, including because such alleged misconduct increased the costs of the arbitration. It added that it is entitled to recover all of its costs notwithstanding the fact that it has been represented by the law firm of Afe Babalola & Co at no cost throughout the proceeding.
It submitted that its costs comprised of arbitration costs, legal costs, witness costs, travelling and accommodation expenses, and disbursements, which, it said, “are entirely reasonable.”
The government thereafter submitted a grand total of $3,767,446.36 in costs, a breakdown of which comprised of payment made to the ICSID secretariat ($675,000.00) , legal cost ($1,150,000.00), witness cost ($603,946.36), travelling and accommodation expenses ($1,270,000.00), and disbursements ($68,500.00).
Delivering its verdict, the tribunal established that article 61(2) of the ICSID Convention provides that the tribunal has discretion to allocate all costs of the arbitration, including attorney’s fees and other costs, such as arbitration costs, expenses and disbursements, between the parties as it deems appropriate.
The tribunal also accepted that Nigeria has prevailed, and that a “costs follow the event” principle might normally lead to recuperation of legal fees.
In legal parlance, the “Costs Follow Event” principle is an order that recovery of costs be awarded to the party who is the winner of the issue, matter or case.
However, in its verdict, the tribunal ruled that no legal costs have been incurred by Nigeria and no legal costs can be awarded.
“Respondent was represented pro bono by Aare Afe Babalola & Co, which confirmed having served in this matter without compensation. The firm of Volterra Fietta, and Ms. Rose Rameau, were supporting counsel in the legal team led by Afe Babalola & Co,” the tribunal ruled.
“This pro bono representation has been acknowledged by the Respondent and its counsel, as has the supporting role of Volterra Fietta and Ms. Rose Rameau. In this connection, the Tribunal notes communications received by Mr. Garel at ICSID, sent by the Nigerian Attorney General on 27 October 2016 and by the Afe Babalola & Co firm on 29 October 2016.”
On the basis of the pro-bono arrangement, the tribunal ruled that it cannot but acknowledge that Nigeria “has not incurred any legal costs”, and, consequently, cannot order the reimbursement, to Nigeria, of legal costs that it has not incurred.
“Odd”, “Greatly exaggerated”, “Unreasonably high” claims
With respect to all other costs presented by Nigeria, the tribunal said it considered, in principle, that the “costs follow the event” approach applies and that, consequently, the oil companies would have to reimburse to Nigeria all other costs it incurred in defending their (Claimants’) claims.
“However,” the tribunal said, “the amounts claimed by the Respondent (Federal Republic of Nigeria) under the Witness Costs, Travelling and Accommodations Expenses, and Disbursements categories have given rise to much doubt among the Tribunal members about their genuineness and accuracy, as explained below.
“The Tribunal finds itself therefore unable to order the reimbursement of these costs by Claimants to Respondent.”
First, the tribunal noted that it found the amount claimed under the Travelling and Accommodations Expenses category (USD 1,270,000.00) to be unreasonably high.
“The Tribunal understands that a Nigerian delegation had to travel to and stay in London on four different occasions, and that the resulting costs would necessarily be higher than that of Claimants, but the amount claimed is over 10 times higher than Claimants’ and seems to reflect opulent, if not sumptuous choices made by Respondent,” the verdict reads.
“The Tribunal considers that it would be unfair to order Claimants to bear the financial consequences of the travelling and accommodation choices made by Respondent when such choices have driven the costs to over a million dollars.”
Again, the tribunal said that it found the amounts claimed under the Witness Costs category to be odd, noting that “not only are the costs claimed for Engr. Bello and Prof. Atsegbua identical, i.e. USD 50,986.59 each, which seems highly unlikely, but they each are exactly half of the costs claimed with respect to Justice Ayoola, i.e. USD 101,973.18.”
It continued: “It is as if the Respondent has divided by two the costs of Justice Ayoola to establish and claim the costs of Engr. Bello and Prof. Atsegbua. In addition, the fact that the costs claimed with respect to Daniel Harris is a round figure of USD 400,000 seems artificial and therefore unlikely to reflect reality. The Tribunal is unable to order the reimbursement of these costs when the amounts claimed are so obviously odd.”
In the same vein, the Tribunal also found the amounts claimed under the Disbursements category to be odd.
“First, they all are round figures, which seems artificial and therefore unlikely to reflect reality,” the tribunal said in its verdict.
“Second, the amount claimed as ‘Hyperlink of processes and documents’, i.e. USD 30,000 seems greatly exaggerated, especially when it does not appear than any of the Respondent’s submissions or even lists of supporting documents were hyperlinked at all. The Tribunal is unable to order the reimbursement of these costs when the amounts claimed are so obviously odd.”
The tribunal finally agreed to apply the “costs follow the event” principle to the arbitration costs by placing it (costs of the arbitration, including the fees and expenses of the Tribunal ICSID’s administrative fees and direct expenses) at $1,320,259.74.
“The above costs ($1,320,259.74) have been paid out of the advances made by the Parties in equal parts. As a result, each Party’s share of the costs of arbitration amounts to USD 660,129.87. Claimants (InterOcean) shall therefore reimburse USD 660,129.87 to Respondent (FRN) with respect to costs of the arbitration,” the verdict said.
In a telephone conversation with PREMIUM TIMES Monday night, Umaru Gwandu, Mr Malami’s spokesperson, argued that there was no claim for refund made by the Federal Government legal team that was rejected. He added that “downsizing” or reduction of fees claimed by parties is an uncontestable common practice in conflict resolution, dispute management, transnational negotiations, and business transactions.
“First, it is expedient to put the record straight. There was no claim for refund made by the Federal Government legal team that was rejected,” he claimed.
“Secondly, the misrepresented claim was neither by Abubakar Malami as a person and nor by the Attorney-General of the Federation and Minister of Justice, Abubakar Malami, SAN. It was never an individual/personal affair nor a private undertaking it was by the team of lawyers representing the Federal Government and not the Minister in person.
“For best reasons known to it, the Tribunal in its wisdom took a stand on the requested amount for refund. Though, the legal team may be in the position to explain the justification for their submission for refund of expenses incurred during the litigation, paragraph 385 of the document alluded to the possible reason opining that the amount “seems to reflect opulent, if not sumptuous choices made by Respondent”. Individuals and institutions may have the right of their opinions and choice of words.
“The Tribunal did NOT reject the refund but adjusted the amount.”
Mr Gwandu said “the crux of the matter is contained on Paragraph 396 of the judgement where the Tribunal absolves the Federal Government of Nigeria from any liability maintaining that Nigeria did not breach any of its obligations in the contract agreement with Interocean Development Company and Interocean Oil Exploration Company.”
He added that the judgement “demonstrates the renewed commitment of the present administration to patriotically and relentlessly discharge its constitutional mandates in the best interest of the nation and general public. Gone was such an era of connivance to deprive the nation of its resources for gratifying ulterior motives of vested interest at the expense of the Nigeria populace.”