Defining the seat of arbitration: when “venue” means legal seat

The claimant, Process and Industrial Developments Ltd (P&ID) applied to the English court to enforce a USD6.6 billion arbitration award against Nigeria. Nigeria resisted enforcement, claiming that the arbitration was seated in Nigeria and so enforcement in the English court was not an option under s66 Arbitration Act 1996. Nigeria also contended that, even if enforcement were possible, it should be refused on public policy grounds.

The “venue” of the arbitration

The arbitration concerned a Gas Supply and Processing Agreement (the GSPA) relating to the supply and processing of natural gas in Nigeria. The GSPA was governed by Nigerian law and provided that, in the event of dispute, a party could serve notice of arbitration under the rules of the Nigerian Arbitration and Conciliation Act (Cap A18 LFN 2004) (the Nigerian ACA) which, unless otherwise provided in the GSPA, would apply to the dispute. The arbitration agreement also provided that “[t]he venue of the arbitration shall be London, England or otherwise as agreed between the Parties”.

A dispute arose and P&ID commenced arbitration in London. Nigeria participated in proceedings and the appointed tribunal issued two part final awards, the first with regards to preliminary matters, and the second with regards to liability, finding in favour of P&ID (the Liability Award). The final phase on damages was to follow.

Nigeria applied to the English courts to set aside the Liability Award on the grounds of serious irregularity. That application was rejected. Nigeria then applied to the Nigerian courts to set aside the award. Before the Nigerian courts ruled on the set aside application, the tribunal issued a procedural order confirming that the seat of arbitration was London, England.

The application to set aside the Liability Award in Nigeria was successful. However, because the tribunal had found that the legal seat was England, it did not consider the Nigerian courts to have the power to set aside the award. The arbitration therefore continued, with Nigeria participating but maintaining its position with regards to the set aside of the Liability Award. The tribunal issued its Final Award. P&ID applied to the English courts to enforce that award, leading to the current decision.

Determining the seat of the arbitration

The issue of the legal seat arose in enforcement proceedings. Nigeria argued that the seat was Nigeria, and that “venue” in the arbitration agreement was intended to refer only to the physical location of hearings. Conversely, P&ID maintained that the seat was England and that “venue” referred to the legal seat of the arbitration. As the tribunal had already ruled on the matter (and this has not been challenged by Nigeria) the court considered that it was no longer open to Nigeria to re-open this question. The court went on to confirm that, in any event, the tribunal had reached the correct decision on the seat. It was agreed that the principles of construction under Nigerian law were the same as under English law. The court also took into account the incorporation of the rules of the Nigerian ACA, which included rules for determining the legal seat. The court concluded that the seat was England because:

• The clause referred to venue “of the arbitration”, implying that it would apply to the whole proceedings. This was compared with the language used in the Nigerian ACA to refer to the physical location, for example where a tribunal may “meet” or “hear witnesses, experts or the parties”.
  
  

• The clause stated that the venue of the arbitration “shall be” London. If the reference to “venue” was to where the hearings would take place, it would be inconvenient for this to be in London given the location of the parties. The court reasoned that this was not something that the parties were likely to have intended. In addition, the arbitration agreement allowed the “venue” to be changed only by the parties, not the tribunal. The selection of the hearing venue is typically decided by the arbitrators, further indicating that the parties intended to refer to the legal seat.
  
  

• Reference to the rules of the Nigerian ACA was not inconsistent with the choice of England as the seat. Any non-mandatory provisions of the Arbitration Act 1996 were displaced and only the mandatory provisions would continue to apply.

Public policy reasons to refuse enforcement

The court then turned to Nigeria’s argument that enforcement should be refused on public policy grounds because the damages awarded were so high that that they amounted to an unenforceable penalty. The court accepted that, in principle, it could refuse enforcement of an award on public policy grounds. However, there was no public policy requiring the court to refuse to enforce an award which is intended to award compensatory damages, even if the tribunal had made an error of fact or law in arriving at those damages. The court emphasised that the award could have been challenged by Nigeria prior to the enforcement proceedings, but Nigeria had failed to do so.

Comment

The seat is a key factor in any arbitration. It provides a “home” for the arbitration, determines the law governing the relationship between the tribunal and the courts, and also determines which court has supervisory jurisdiction over the arbitration (giving them the power to, among other things, set aside an award). The seat will also determine where the award has been made, which is significant when trying to enforce the award.

The physical location of an arbitration does not have the same legal significance. Generally speaking, the location is decided based on convenience of all involved. It does not need to be (and frequently isn’t) the same as the legal seat of the arbitration.

It is important for parties to designate the legal seat of an arbitration in their arbitration agreement. This case underlines the benefits of using clear terms when referring to the intended seat in an arbitration agreement to ensure that the legal seat is where the parties intended and to avoid unnecessary procedural disputes.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy Edwards, amy.edwards@allenovery.com.