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Breach of the Public Procurement Act as a Public Policy Defence to the Enforcement of an Arbitral Award in Nigeria by Chizaram Uzodinma

26 Aug 2019 10:59 AM | Anonymous member (Administrator)

Introduction

Recently, the Supreme Court in Mauritius invoked its powers under section 39(b)(ii) of the Mauritius International Arbitration Act 2008,[1] to set aside an arbitration award on the ground that the enforcement of the underlying contract was in flagrant and concrete  breach of the Mauritius Public Procurement Act therefore, the award was a violation of the Mauritius public policy.[2]

This article will attempt to address whether the Nigerian courts would hold a similar view as the Supreme Court in Mauritius, that a breach of the Nigerian Public Procurement Act should be held as so fundamental as to amount to a breach of the public policy of Nigeria warranting the refusal of the enforcement of an award arising from such a breach.

Background Facts of the Mauritius Supreme Court Decision

Betamax, a shipping company had entered into a contract with the Mauritius State Trading Company for the freight of petroleum product from India to Mauritius. Subsequently, the contract was terminated by the Mauritius government on the basis that the contract was entered into in breach of the Public Procurement Act of Mauritius. Betamax commenced arbitration against the government of Mauritius for breach of contract, and the tribunal decided in favour of Betamax. Betamax thereafter sought to enforce the award in Mauritius. However, the Mauritius government challenged the enforcement and also applied to set aside the award on the basis that the contract was illegally concluded. Therefore, the enforcement of the award will be in breach of the country’s public policy. The Supreme Court set aside the award after holding that the contract would violate the fundamental legal order of Mauritius because it was “in flagrant and concrete breach of public procurement legislation enacted to secure the protection of good governance of public funds”. The Court added that “such a violation breaks through the ceiling of the high threshold which may be imposed by any restrictive notion of public policy”.

Refusal to Enforce an Award on Grounds of Public Policy under Nigerian Law

The concept of public policy is quite broad and does not have any statutory definition in Nigeria. However, judicial decisions exist where attempts were made to define the term, public policy. For instance, in Okonkwo v. Okagbue,[3] the Supreme Court viewed the term as the ideals which for the time being prevails in any community as to the conditions necessary to ensure its welfare, so that anything is treated as against public policy if it is generally injurious to the public interest.  Furthermore, in Total Nigeria Plc. v. Ajayi,[4] the Court of Appeal stated that “the principle of public policy is to protect public interest by which the courts would not sanction what is injurious to public welfare or against the public good. The phrase public policy, therefore, means that policy of the law of not sanctioning an act which is against the public interest in the sense that it is injurious to public welfare or public good.”

The nebulous feature of the notion was also recognized by the Supreme Court in Sonnar Ltd. v. Nordwind,[5] where Eso, J.S.C. said “Surely, public policy is an unruly horse and judges are not such masters of equestrian ability to take on such experience”.

The above decisions of the Supreme Court and the Court of Appeal reveal that when courts are confronted with the issue of public policy as a defence against the enforcement of an arbitral award, the courts usually take a restrictive approach in its interpretation of the concept. In Agro-Allied Development Ent. Limited. v. United Shipping Trading Co. Inc.,[6] the Court of Appeal upheld a High Court decision which made a recognition and enforcement of an award order despite the argument of the appellant that the award was against the public policy of Nigeria. The Court considered that there was no perversity in the judgment of the High Court and that the award is not contrary to any public policy in Nigeria. Furthermore, in Nigerian National Petroleum Corporation (NNPC) v. Lutin Investment Limited & Anor[7], the appellant argued that the arbitrator be removed because he had acted against public policy by moving the seat of arbitration to London at the expense of the parties when the agreement was governed by Nigerian law. The Supreme Court unanimously dismissed the appeal and recognized the power or discretion of the arbitrator to go abroad to hear evidence from witnesses.

Notwithstanding the nebulous nature of the term “public policy”, courts have held that illegal contracts are against public policy. In effect, where an arbitration agreement is classified by a court as an illegal contract, the court is likely to find that an award made on the basis of that arbitration agreement is unenforceable for being a product of an illegal contract. So, if the arbitration agreement is prohibited by statute, an award from it may not have favourable recognition from courts. In Fasel Services Ltd & Anor. v. NPA & Anor,[8] the Supreme Court stated that “without getting unduly enmeshed in the controversy regarding the definition or classification of that term (illegal contract), it will be enough to say that contracts which are prohibited by statute or at common law, coupled with provisions for sanction (such as fine or imprisonment) in the event of its contravention are said to be illegal.” Furthermore, in Oguntuwase v. Jegede[9] the Court of Appeal stated that “the general principle of the law that an illegal contract will not be upheld and enforced by the Court is founded on the public policy embodied in the maxim,in pari delicto, potior est conditio defendentis and ex-trupi causa non orituractio, that is, a party who is himself guilty of an action, does not have a right to enforce performance of an agreement founded on a consideration that is contrary to public interest or policy”.  Therefore, an award arising from an illegal contract may be set aside on the grounds of public policy.

Breach of the Public Procurement Act and the Public Policy Ground for Refusal of Enforcement

The Public Procurement Act 2007 (‘the PPA’) was enacted to ensure a fair, competitive and transparent standard for the procurement and disposal of public assets. It governs the manner in which public funds are used to purchase public goods and services. Therefore, provisions of the PPA impacts on public policy because a flagrant violation of the PPA could result in the award of a major procurement contract to an unqualified contractor or the purchase of substandard goods or services, which would be injurious to public welfare and interest.

It may be argued that not every violation of the PPA should be treated as a breach of public policy, and that some provisions should be treated as directory, as the Court of Appeal in Revenue Mobilization, Allocation and Fiscal Commission v. Onwuekweikpe Esq.,[10] has muted: “it is not every non-compliance with the provisions of a statute that is fatal. A breach of mandatory enactment renders what has been done null and void. But if the statute is merely directory, it is immaterial, so far as it relates to the validity of the thing done, whether the provisions of the statute are accurately followed out or not.” However, section 58 of the PPA makes it a punishable offence for natural or legal persons to contravene “any provision of this Act”. This section connotes that the provisions of the PPA cannot be treated as merely directory.

The effect of a contract which breached statutory provision is aptly stated by the Supreme Court in Corporate Ideal Insurance Ltd v. Ajaokuta Steel Company Ltd & Ors[11]  albeit in relation to the Insurance Act 2003. The Apex court stated that “A contract which violently violates the provisions of a statute as in this case, with the sole aim of circumventing the intendment of the law maker is, to all intents and purpose, illegal, null and void and unenforceable. Such a contract or agreement is against public policy and makes nonsense of legislative efforts to streamline the ways and means of business relations”. It is opined therefore, that the PPA, which affects public interest is not just a directory statute, but a mandatory enactment which contravention will render a contract based thereon, illegal and against public policy.

In context of a challenge to the enforcement of an award on the public policy ground, the courts would have to consider the alleged breach in juxtaposition with the provisions of the PPA and determine whether there has indeed been a violation of the PPA. Where it determines that the PPA was violated in awarding the contract, the court may align with the position of the Mauritius Supreme Court by setting aside or refusing recognition of an arbitral award arising from the contract.

Conclusion

From the provisions of Nigerian case law on public policy, it has been established that the Nigerian courts adopt a restrictive approach in applying the public policy ground for setting aside or refusing the enforcement of an arbitral award. However, it is also established that illegal contracts are contrary to public policy, and that a contract is illegal where it violates mandatory provisions of statute.  Due to the mandatory nature of the PPA, which was enacted to protect public interest in the procurement of goods and services and which sanctions the contravention of its provisions, it is believed that the Nigerian courts would consider a contract executed in breach of its provisions in a similar manner as the Mauritius Supreme Court in the Betamax case and set aside or refuse the enforcement or an award arising from such a contract on the public policy ground.

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[1] Similar to Section 48(b)(ii) of the Nigerian Arbitration and Conciliation Act CAP A18, LFN 2004 and Article 34(2)(b)(2) of the UNCITRAL Model Law 1985, amended in 2006.

[2] Paray N.B, Dabee, S and Maxime, S.P (2019). The Supreme Court of Mauritius sets aside award on grounds of breach of domestic public policy [online]. Lexology. Available from:https://www.lexology.com/library/detail.aspx?g=dbac875b-12f7-44d9-b921-f2fd0e8fe677 [accessed 6 June 2019].

[3] (1994) 9 NWLR (Pt. 368)

[4] (2003) LPELR-6174(CA)

[5] (1987) 4 NWLR (Pt. 66) 520

[6] [2011] 9 NWLR (Pt. 1252) 258

[7] (2006) 2 CLRN 1 (SC)

[8] (2009) LPELR-1245(SC)

[9] (2015) LPELR-24826(CA)

[10] (2008) LPELR-8398(CA)

[11] (2014) LPELR-22255(SC)



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