PAN OCEAN OIL CORPORATION (NIG.) LTD. v. KCA DEUTAG DRILLING GMBH & ANOR.
SUPREME COURT
(GARBA; JAURO; SANKEY; ADUMEIN; UMAR: JJSC)
FACTS
Pan Ocean Oil Corporation (Nig) Ltd (the Appellant) entered into a land drilling rig agreement with KCA Deutag Drilling GMBH, a German company (the 1st Respondent), and its Nigerian subsidiary, KCA Deutag (Nigeria) Ltd (the 2nd Respondent). Under the agreement, the Respondents were to provide and operate a land drilling rig together with associated drilling services, including supporting equipment, spare parts, supplies, services, and personnel, to drill oil and gas wells at locations designated by the Appellant. To perform its obligations in Nigeria, the 1st Respondent incorporated the 2nd Respondent and equipped it with the resources necessary to execute the contract. The 2nd Respondent duly performed its part of the agreement within Nigeria and issued invoices to the Appellant for services rendered. The Appellant, however, failed to settle these invoices as agreed. Despite repeated written and oral demands for payment, the debt remained outstanding, prompting the Respondents to submit the dispute to arbitration under the Rules of the International Chamber of Commerce (ICC), in accordance with the arbitration clause contained in the agreement.
During the arbitral proceedings, the parties reached a negotiated settlement and jointly requested the arbitral tribunal to embody the agreed terms in a consent award. The tribunal accordingly entered a consent award in favour of the Respondents, setting out the terms of payment and the time frame for compliance. The Appellant voluntarily paid part of the award, while the Respondents recovered additional sums through garnishee proceedings against the Appellant’s bankers. Nevertheless, a substantial balance of the award remained unpaid. Faced with the Appellant’s persistent refusal to fully comply with the terms of the consent award, the Respondents applied to the trial court for recognition and enforcement of the arbitral award. The Appellant did not initially oppose the application but subsequently filed an application seeking to stay further execution of the award and to set aside the trial court’s ruling recognizing it. The Appellant’s contention was that the underlying agreement was illegal because the 1st Respondent, being a foreign company, had carried on business in Nigeria without proper incorporation.
The trial court dismissed the Appellant’s application. Dissatisfied with the ruling of the trial court, the Appellant appealed to the Court of Appeal, which unanimously affirmed the decision of the trial court and held that the arbitral award was valid and enforceable against the Applicant.
Still aggrieved with the decision of the Court of Appeal, the Appellant further appealed to the Supreme Court. One of the key issues before the Court was: Whether the contract forming the basis of the arbitral award was illegal, regardless of whether there was evidence that the 1st Respondent had directly executed the contract.
ARGUMENTS
Learned counsel for the Appellant contended that the 1st Respondent, being a foreign company not incorporated in Nigeria, was by law prohibited from carrying on or engaging in any form of business activity within the country without first being duly incorporated under the law. On that basis, he argued that the contract entered into between the Appellant and the Respondents was tainted with illegality and was therefore void and unenforceable in the eyes of the law. He maintained that the contract, having been founded on an illegality, could not constitute a valid basis for the issuance or recognition of an arbitral award. Consequently, he submitted that the trial court lacked jurisdiction to recognise or enforce any award arising from such an unlawful agreement. Counsel further argued that it is a settled principle of law that where an arbitral award is rooted in an illegal or void contract, the court is stripped of the authority to give effect to it, irrespective of when the plea of illegality is raised. He faulted the trial court for rejecting the plea of illegality merely because there was no direct evidence that the 1st Respondent executed the contract within Nigeria. According to the learned counsel, illegality could arise at the point of contract formation and not necessarily during its performance, and once illegality is shown, it renders the entire transaction null and void.
He emphasised that a contract is considered illegal where its object, purpose, or performance is expressly prohibited by statute, or where its enforcement would offend the public policy of Nigeria. Counsel insisted that the present contract fell squarely within this category, as it effectively permitted a foreign company to carry on commercial operations in Nigeria without registration, contrary to the mandatory provisions of CAMA and other regulatory instruments governing business operations in the country. He submitted that the effect of such illegality was to nullify both the contract and any proceedings arising therefrom, including the arbitral award.
In response, learned counsel for the Respondents argued that although the agreement was executed between the Appellant and the Respondents, it was, in substance, the 2nd Respondent a company duly incorporated in Nigeria that carried out the obligations under the contract. He maintained that the 1st Respondent’s foreign status was immaterial since all acts constituting performance of the contract occurred within Nigeria through a properly registered Nigerian entity. Counsel further submitted that the Appellant, having raised the issue of illegality as one touching on jurisdiction, was bound to have brought it before the arbitral tribunal during the proceedings. By failing to do so, and by participating fully in the arbitration without objection, the Appellant had waived its right to subsequently challenge the validity of the contract on that basis.
He also pointed out that the Appellant did not at any stage seek to set aside the arbitral award on grounds of public policy, misconduct, or excess of jurisdiction, nor did it question the arbitrators’ competence or the validity of the reference. Consequently, the trial court was correct in holding that the belated plea of illegality was a mere afterthought intended to frustrate enforcement. In his view, the Appellant could not approbate and reprobate by accepting the benefits of the arbitral process and later disputing its legitimacy. He therefore urged the court to dismiss the appeal and affirm the concurrent findings of the lower courts upholding the enforcement of the arbitral award.
DECISION OF THE COURT
In resolving this issue, the Supreme Court held that:
A party that has enjoyed benefits under an agreement is estopped from subsequently asserting that the contract is illegal, null, or void. The Supreme Court held that equity will not allow a party who has immensely benefited from a transaction to subsequently challenge its legality as doing so would amount to conduct that is morally reprehensible and contrary to public interest.
Furthermore, the Supreme Court added that, having benefited from the contract the Appellant would not be allowed to turn around to allege that the agreement was illegal on the ground that the 1st Respondent is a foreign company incorporated in Germany and doing business in Nigeria. The Court reasoned that a party cannot, in good conscience, accept the benefits of a contract and subsequently challenge its validity when it suits its purpose. It held that in the absence of any cogent or credible evidence proving that the 1st Respondent personally executed and performed the contract in Nigeria, it would be inequitable and highly unconscionable for the Appellant, who had evidently enjoyed the benefits of the agreement and derived value therefrom, to now impugn the arbitral award on grounds of illegality.
The issue was therefore resolved in favour of the Respondent.
Olalekan Bade-John, Esq. for the Appellant.
Festus Onyia, Esq. with him, Daniel Adedigba, Esq. for the Respondents.
This summary is fully reported at (2025) 10 CLRN in association with ALP NG & Co.
See www.clrndirect.com ; www.alp.company.
