Need to Plead, Particularise and Prove Special Damages:  Applicability in Arbitral Proceedings

In the Federal High Court of Nigeria In the Lagos Judicial Division Holden at Lagos

On Friday, the 27th day of October, 2023

Before His Lordship

Chukwujekwu Joseph Aneke

Judge, Federal High Court

Suit No: FHC/L/CS/1542/2020

Between

Nigeria National Petroleum Corporation Limited (NNPCL)                           Applicant

                                 And

Chevron Nigeria Limited                Respondent

 (Judgement delivered by Honourable Justice Chukwujekwu Joseph Aneke)

Facts

The Respondent, Chevron Nigeria Limited (CNL) and Addax Petroleum Development (Nigeria) Limited (Addax) (substituted with the Applicant) executed a Crude Handling Agreement (CHA), prescribing the method for sharing their commingled crude oil. A dispute arose on how this method was applied. A three-man Arbitral Tribunal was constituted to resolve the dispute by arbitration, namely, (i)Mr Abdul-Lateef Jinadu; (ii) Dr Tunde Ogowewo; and (iii) Babajide O. Ogundipe (Chairman). The tribunal published a Partial Final Award on 2nd September, 2020 and Final Award dated 8th October, 2020, and awarded the sum of $170,799,382.00 to CNL, being monetary value for the 1,290,265 barrels of crude oil CNL sought in its Counter-Claim. 

Addax filed an Originating Motion dated 5/11/2020, seeking to set aside the Partial and Final Awards on twelve grounds. CNL filed a Notice of Preliminary Objection dated 23/11/2020, challenging the jurisdiction of the court and a separate suit seeking to enforce the Awards.

Arguments

In support of its Preliminary Objection, CNL argued that the grounds complaining of misconduct and errors on the face of the awards are not misconducts and errors qualifying the awards for setting aside, but mere dissatisfaction with the merit of the awards and outside the scope specified by Sections 29 and 30 of the ACA.  Addax countered the submission, arguing that by law once a Defendant challenges jurisdiction, he is taken as having conceded all questions of facts as contained in a claim as correct. Addax argued that CNL having taken all its twelve grounds for applying to set aside the award as true and correct for all purposes of its Preliminary Objection, it cannot subsequently argue that its allegations of misconduct and error in law on the face of the awards are outside of the law.  

Arguing the substantive application, Addax submitted that CNL did not place before the tribunal, any verifiable evidence of how the 1,612,837 barrels of crude oil it claimed was calculated. The figure and the sum of US$170,799,382.00 awarded were neither specifically pleaded with particulars, nor supported with credible evidence to merit these awards. Relying on decided authorities, Addax submitted that where there is a misapplication of the principles underpinning the grant of special damages, the award qualifies to be set aside. Addax also argued that the awards were materially plagued by inconsistencies and ambiguity; it highlighted specific instances of the awards where, according to it, the tribunal misconducted itself by dealing with points not submitted to it by the parties. Addax also alleged that the tribunal misconstrued very important and central points of dispute between the parties against it. Addax challenged the decision of the tribunal that limitation law can be waived or defeated by estoppel, arguing that this was an error of law on the face of the award. 

Addax also argued that the tribunal misconducted itself, when it based its decision on a point that CNL did not raise or materially plead in its its Defence and Counterclaim, but which materially affected the Partial Award in ways adverse to Addax’s interest. It also challenged the Partial Award on the ground that the tribunal overlooked, ignored, or failed to consider or/and apply very material evidence on the central points in the dispute between the parties, when it held that there was no evidence that the parties agreed to modify the commingled crude oil sharing method, despite direct documentary evidence to that effect introduced before the tribunal. Addax also complained that the tribunal misconducted itself, by misstating and misapplying a fundamental legal principle on mitigation of loss, and argued that the tribunal violated Article 40 of the First Schedule of the ACA in awarding against it arbitration costs despite being partially successful at the arbitration. It also submitted that clause 19 of the agreement provided that a party can only be compensated for the gross negligence or wilful misconduct of the other party, and that having found that Addax is not liable of this, the tribunal had no basis awarding 1,612,837 barrels of crude oil to CNL. Finally, Addax complained that the tribunal misconducted itself by failing to act fairly towards both parties, and that the awards were perverse, unconscionable and against public policy. 

CNL very strongly opposed the application, arguing conversely that on the twelve grounds raised by Addax, there was considerable evidence including expert evidence establishing the requisite aspect of its claim; that the alleged   inconsistencies did not establish a substantial miscarriage of justice; that the grounds predicated on “error of law on the face of the award” is no longer available as a ground to set aside an award under the ACA, and there was no substantial miscarriage of justice. CNL further argued that Addax admitted that it unilaterally suspended the CHA allocation formula; the tribunal applied the correct principles in relation to estoppel and waiver. Additionally, on agreement about the non-contractual sharing formula, CNL argued that the complaint is against the tribunal’s evaluation of evidence and same must fail; on mitigation of loss, CNL argued that the tribunal applied the correct legal principles; that the findings did not affect the tribunal’s central findings on liability.

Finally, CNL argued that the court cannot serve as appellate review of the tribunal’s evaluation of evidence; and that “perverseness” is not a ground for setting aside an award under the ACA.

Court’s Decision and Rationale

In determining the Preliminary Objection, the court considered the twelve grounds put forward by Addax, and concluded that some of these grounds bordered on allegation of misconduct of the arbitrators. The tribunal found that, the arbitrators went beyond the scope of the matters submitted to arbitration. 

Referring to the ground of CNL in support of its Preliminary Objection, where it stated that “although Addax couched the grounds in support of its Originating Motion so as to ostensibly bring them within the limited scope provided by Sections 29 and 30 of the ACA, a closer reading of the particulars of the grounds show that the grounds are outside the limited scope provided by Sections 29 and 30 of the ACA”, the court found that this amounts to an admission by CNL that the grounds are within the provisions of Sections 29 and 30 of the ACA. The particulars of these grounds cannot control the grounds, they should support the grounds, and any particular that is inconsistent with its ground ought to be struck out.”  

The Preliminary Objection was accordingly struck out.

Deciding the substantive claim, the court referred to the tribunal’s findings in paragraphs of the Partial Award, where it held that the evidence of CNL’s losses was limited to the period between the installation of the surge vessel in 2010 and the reversion to the contractual allocation formula found in the witness statement of Eddie Agbongiator. In paragraph 28 of the said witness statement, he stated that he applied the contractual formula for the period 17 May, 2004 to 1st May, 2012 and by his calculation, CNL is owed approximately 1.6 million barrels. The tribunal found that the evidence above is the only direct testimony on the volume of crude oil claimed. There was also the DPR-NAPIMS Report of 2014 where the loss to CNL was stated as 1,612,837 barrels. According to the court, CNL pleaded in paragraph 132 of its Amended Statement of Defence and Counter-claim that it lost 1,612,837 barrels of crude oil between May 2004 and June 2012. After this paragraph, the Respondent went on to seek reliefs in paragraph 133, where it claimed US$170,799,382. The court held thus: “the principle of law that special damages must be pleaded with particulars and strictly proved, applies equally to Arbitration Tribunal – NNPC v KLIFCO NIG. LTD (2011) 4 SC (PT. I) 108 at 144.” Juxtaposing the facts and findings of the Tribunal with law, the court held that relief(s) claimed in a statement of claim (or pleading) does not constitute facts pleaded. … reliefs claimed are not part of pleadings. CNL did not plead the sum US$170,799,382 awarded in its favour, as it only pleaded 1,612,837 barrels of crude oil. Further, the evidence of Eddie Agbongitor, who testified for CNL did not show the list or particulars of the daily production figures from 17th May, 2004 to 1st May,

 2012 which he relied on in calculating CNL’s loss, just as his calculation was not shown in his witness statement on oath. Further, his testimony that CNL is owed approximately 1.6 million barrels of crude oil is not strict proof of 1,612,837 barrels as pleaded by CNL.  

On the reliance of the tribunal on the Executive Summary of DPR-NAPIMS Report of 2014 to hold that CNL lost 1,612,837 barrels, the court observed that the report was not before it. At any rate, it is the duty of the Arbitral Tribunal to show how using the particulars or subordinate facts provided by CNL, it reached the conclusion that CNL lost a total of 1,612,837 barrels of crude oil to Addax.. “It is a claim for special damages and the Plaintiff must give full particulars and other facts as may be necessary to enable the court to calculate as best as accurately as it can, the actual amount of the Plaintiff’s loss.” Regarding the expert report of Jeff D. Makholm Ph. D, Exhibit A13, the court found that the tribunal’s acceptance of the evidence because Addax could not contradict it, is beside the point. By the decision in KLIFCO case, even if Addax admitted Dr. Makholm’s evidence, it does not relieve Dr. Makholm of providing those values expected of him nor does it relieve the Respondent from pleading them. The court held that CNL neither specifically pleaded how it arrived at the sum of 1,612,837 barrels of crude oil, nor strictly proved same. Also, the sum of US$170,799,382 claimed by the Respondent was neither pleaded, nor strictly proved. 

The court also found that the tribunal contradicted itself when, having found in paragraph 32.12 of the Partial Award that CNL acceded to Addax applying an allocation factor of 0.97, it reversed itself by holding in the last sentence of paragraph 32.13 that Addax needed to adduce evidence to support the existence of the collateral contract. His Lordship held further that the issue of whether CNL acceded to a new allocation factor different from that provided in the agreement is crucial, because it determines the liability of Addax to CNL. These inconsistencies cast a doubt in the mind of the court, on the conclusion of the tribunal that the Respondent is entitled to 1,612,837 barrels of crude oil.  

On Addax’s allegation of misconduct on the ground that CNL did not plead waiver to be entitled to treat the agreement as continuing, His Lordship found that CNL did not plead the points considered by the tribunal.

The court found that Addax’s argument that CNL’s counter claim was statute barred must fail. According to the court, “an Arbitral Tribunal is the sole or final Judge on questions of law or fact, except where the statute and courts have created exceptions.” 

The court also found that the tribunal did not wrongly apportion the costs, and complied with the agreement.

The Partial and Final Awards were set aside by the court on grounds of error of law on the face of the award, and misconduct arising from inconsistent findings on the face of the award which made the award perverse.

Arbitral Awards Set Aside.

Representation

Prof. B. Adaralegbe, Esq. & Ors. for the Applicant.

B. Fagbohunlu, SAN & Ors. for the Respondent.

Reported by Optimum Publishers Limited, Publishers of the Nigerian Monthly Law Reports (NMLR) An Affiliate of Babalakin & Co.