Appeal Court dismisses oil firms’ suit against FIRS



The Court of Appeal sitting in Abuja has upheld a judgement quashing two arbitration awards worth $10 billion against the Nigerian National Petroleum Corporation (NNPC) in favour of Shell and three other oil companies.

The appellate court declared that only the Federal High Court not an arbitration tribunal can exercise jurisdiction on issue of revenue of the Government of the Federation connected with or pertaining to the taxation of companies and other bodies established or carrying on business in Nigeria.

Shell, Esso Exploration & Production Nigeria (Deep Water) Ltd.; Nigeria Agip Exploration Ltd.; as well as Total Exp. and Production Nig. Ltd., had filed an appeal suit No.CA/A/208/2012 against Federal Inland Revenue Service (FIRS) and NNPC arising from the judgment of the Federal High Court Abuja, delivered on the 29th of February, 2012, in Suit No: FHC/ABJ/CS/744/2011, in which the court found that the claim of the oil companies before the Arbitral Tribunal arising out of the operation of the Production Sharing Contract, related to tax disputes and therefore not referable to arbitration.

Aggrieved by the decision, the oil companies had appealed by way of two Notices of Appeal. The companies claimed they entered into a Production Sharing Contract, dated in April 1993, with the NNPC in respect of Deep Offshore Oil Mining Lease 118 (OML 118 PSC), with the aim of exploration of oil in Nigeria’s deep water acreages. In the contract, it
was said that any crude oil found, would be allocated between the two parties in accordance with the “lifting allocation”, on the basis of “Royalty Oil”, “Cost Oil”, “Tax Oil” and “Profit Oil.

The companies then alleged that the NNPC breached the term of the Production Sharing Contract (PSC) since May 2007 and has continued to lift crude oil in excess of its entitlement. Based on this, they decided to commence Arbitration Proceedings against NNPC in South Africa, London and United States.

And since the subject matter of the arbitration panel bothered on the interpretation, application and administration of the Petroleum Profit Tax Act and the Deep Offshore Act, Education Tax Act and Company Income Tax

Act for which over $10 billion is being sought by the oil companies, the FIRS sued NNPC and the oil companies by asking a federal high court to void arbitral proceedings on the grounds that the tax issues raised in the arbitration proceedings were not resolvable by arbitration. And the lower court ruled in favour of FIRS.

Delivering the judgement on the appeal filed by the oil companies, Justice Abubakar Yahaya, noted that the claims filed at the Arbitration Tribunal by the oil companies, were essentially tax disputes and so not arbitrable.

“The Tribunal had no jurisdiction to entertain them and the 1st respondent had the locus standi to institute the action at the trial court. The appeal therefore lacks merit and I dismiss it,” he said.

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