EFFECTIVE MEANS STANDARD An Analysis of the Effective Means Standard as an alternative to securing enforcement of arbitral awards in Nigeria Ngo-Martins Okonmah Aluko & Oyebode, Lagos Some bilateral and multilateral investment treaties include an effective means provision, which requires the host state to provide foreign investors with effective means of asserting claims and enforcing rights within its territory. The recent cases Chevron Corporation and Texaco Petroleum Company v The Republic of Ecuador and White Industries Australia Limited v Republic of India have defined some basic criteria for the application of the effective means clause, which may provide foreign companies operating in Nigeria with an instrument to secure enforcement of arbitral awards in the country. 26 CONSTRUCTION LAW INTERNATIONAL Volume 11 Issue 2 June 2016
Introduction The effective means standard defined in the cases of Chevron Corporation and Texaco Petroleum Company v The Republic of Ecuador ( Chevron ) 1 and White Industries Australia Limited v Republic of India 2 ( White Industries ) is increasingly relied upon by investors encountering inordinate delays and disconcerting confusion in the judicial system of a host state. According to the above cases, the effective means standard would require a host State to provide foreign investors with effective means of asserting claims and enforcing rights within the territory of the host state. In the Chevron case, the effective means standard was considered lex specialis, that is an independent treaty protection for investors distinct from the denial of justice standard as defined in customary international law. Some recent cases relating to the Nigerian judicial systems may amount to a breach of the effective means standard. This article attempts to identify the effective means standard as a possible alternative available to foreign investors seeking to enforce arbitral awards in Nigeria. After a short analysis of the decisions rendered in the Chevron and White Industries cases, we will describe how these cases may be relevant for Nigeria. Chevron Corporation and Texaco Petroleum Company v The Republic of Ecuador Texaco Petroleum Company initiated several court cases before Ecuadorian national courts in relation to disputes arisen out of some oil concessions. Chevron Corporation acquired Texaco Petroleum Company after the disputes arose and commenced arbitration proceedings against the Republic of Ecuador alleging Ecuador s breach of Article II(7) of the Bilateral Investment Treaty (BIT) between the United States and Ecuador. The arbitral tribunal decided that the effective means standard was a distinct obligation on the host State to adjudicate investors claims without indefinite or undue delay. In Chevron, the tribunal stated that a distinct and potentially lessdemanding text is applicable under the effective means clause. 3 Thus, conduct that would not amount to a violation of the denial of justice standard may nevertheless represent a violation of the effective means standard contained in the relevant investment treaty. 4 The tribunal further stated that it is not an absolute defence that the courts of a particular state generally experience long delays. 5 Credit: chrisdorney / Shutterstock.com CONSTRUCTION LAW INTERNATIONAL Volume 11 Issue 2 June 2016 27
EFFECTIVE MEANS STANDARD (1) OML 125 Nigerian Agip Exploration Limited and Oando OML 125 & 134 Limited v NNPC (the Abo Arbitration ); (2) OML 128 Texaco Nigeria Outer Shelf Limited and Statoil (Nigeria) Limited v NNPC (the OML 128 Arbitration ); (3) OML 133 Esso Exploration and Production Nigeria Limited and Shell Nigeria Exploration and Production Company Limited v NNPC (the Erha Arbitration ); and (4) OML 118 Shell Nigeria Exploration and Production Company Limited, Esso Exploration and Production Nigeria (Deepwater) Ltd, Nigerian Agip Exploration Limited and Total E&P Nigeria Limited v NNPC (the Bonga Arbitration ). These disputes relate to Contractor Parties, 16 which were involved in a number of oil acreages and have commenced arbitration proceedings against NNPC in connection with Production Sharing Contracts (PSCs) with the NNPC. The reliefs sought by these Contractor Parties in these arbitral disputes mostly relate to the applicable royalty rate to be remitted, the Petroleum Profit Tax (PPT) returns to be used to allocate Tax Oil, and the accurate computation of PPT and Investment tax credit. While the arbitration proceedings were ongoing, the Federal Inland Revenue Service ( FIRS ), the Nigerian tax authority, instituted court proceedings in Nigeria challenging the arbitral proceedings and requesting that the court revoke the arbitration clauses (and the resulting awards) contained in the PSCs on the ground that the arbitral tribunals lacked the jurisdiction to determine matters relating to taxation or the revenue of the Nigerian government. These court proceedings are: (1) FIRS v NNPC, Shell Nigeria Exploration and Production Company Limited, Esso Exploration and Production Nigeria (Deepwater) Ltd, Nigerian Agip Exploration Limited and Total E&P Nigeria Limited; 17 (2) FIRS v NNPC, Esso Exploration and Production Nigeria Limited and Shell Nigeria Exploration and Production Company Limited v. NNPC; 18 (3) FIRS v NNPC, Statoil (Nigeria) Limited and Texaco Nigeria Outer Shelf Limited; 19 (4) FIRS v NNPC, Nigerian Agip Exploration Limited and Oando OML 125 & 134 Limited. 20 The challenge was upheld in two of these cases 21 and appeals were filed against the decision by the Contractor Parties. In the other cases, 22 the question of arbitrability of the dispute is yet to be decided by the court. As a matter of fact, in a connected proceedings instituted before the Nigerian courts, the NNPC succeeded in obtaining ex parte orders of interim injunction restraining the continuation of arbitration in OML 128 Arbitration. The decision was however set aside on an appeal to the Court of Appeal on the ground that Nigerian courts lack the jurisdiction to issue antiarbitration injunction. 23 The effective means standard as an alternative to securing enforcement A prospective option available to investors, who find themselves unable to enforce arbitral awards rendered against state controlled entities in Nigeria due to inordinate delays of the Nigerian judicial system or inappropriate judicial interventions by the Nigerian Government in arbitral proceedings, is to commence treaty based arbitration proceedings against the Nigerian State alleging a violation of the effective means protection contained within the applicable BIT. The fact that the Nigerian government harbours a legal system known for lengthy delays due to case congestions and backlogs is not an absolute defence, as this may be indicative of a systemic problem within the judicial system sufficient to establish a breach of the effective means standard. There is also no obligation on a prospective claimant to exhaust local remedies prior to raising such claim, provided it is established that the available local remedies were futile or ineffective. A prospective claimant must show that there has been indefinite or undue delay by the judicial system in determining the relevant investment dispute or an inappropriate judicial/governmental intervention where such is the basis for the claim. It could be argued that the Nigerian disputes illustrated above demonstrate a rather slow and inefficient judicial system and this could amount to a breach of the effective means provision in a relevant BIT. A judicial system that has been unable to determine a set aside application for over ten years and running as in the IPCO case could risk exposing the Nigerian Government to significant liability in the event a treaty based arbitration is instituted against the Government. Also, the proceedings instituted by FIRS to truncate ongoing arbitral proceedings against the NNPC by Contractor Parties may 30 CONSTRUCTION LAW INTERNATIONAL Volume 11 Issue 2 June 2016