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Are Nigeria's foreign oil companies really foreign or are they Nigerian?
I have at different times discussed the susceptibility of foreign investment
in host countries. Foreign oil companies have traditionally been more
affected in this regard because of how oil exploration is arranged. The
capital as well as technical and managerial know-how that is required in the
extractive sector is typically available to companies from the developed
countries.
Extractive resources are at the centre of competing claims between the
sovereign state that relies on it as an important revenue source, and
producing communities who have expectations, on the one hand, and at the
same time in the middle of international politics between developing and
developed countries caused by old colonial wounds. This creates some tension
around exploration activities thereby increasing both direct and indirect
expropriatory risks for these companies.
I have also made the point in this column about the skepticism with which
these companies have come to view the legal systems of developing countries,
at least when it comes to disputes relating to these risks. Ultimately,
their preference is to secure protection for themselves outside these legal
systems, on the international scene.
A natural or legal person cannot bring claims before the International Court
of Justice (ICJ) against a country that has breached its rights; worse, it
cannot bring a claim against its own country in international law (except in
the more recent international human rights regime set up after World War
II). Countries had to bring such actions on behalf of persons based on the
principle of diplomatic protection. The nationality of these persons is
however important in determining which country can bring such an action.
While the nationality of natural persons and the country that may bring a
claim on their behalf is not controversial, that of legal persons is not
straight forward.
Corporate nationality of foreign oil companies in Nigeria
Most countries these days impose a requirement for foreign investors to be
locally incorporated under their laws as a pre-condition for engaging in
business in that jurisdiction. In Nigeria, while the Companies Act of 1968
did not have such a requirement, the CAMA, the NIPC Act and sector specific
laws make such a requirement a condition. In respect of the oil sector, the
Petroleum Act s. 2(2) requires companies that seek oil exploration
activities in Nigeria to be incorporated under CAMA.
Nigerian laws however do not make clear whether foreign oil companies that
are incorporated in Nigeria are "Nigerian companies" with Nigerian
nationality, or "foreign companies" with nationalities that is not Nigerian.
For instance, s. 18 the Deep Offshore Act, states that a license/lease
"Holder" is "any Nigerian company who holds an oil prospecting license or an
oil mining lease".
One would like to assume that because of the stipulation for local
incorporation in Nigeria generally and particularly in the oil sector,
reference in this law to a company that holds an oil lease/license
presupposes that the company is incorporated in Nigeria and therefore a
Nigeria company. It is therefore not clear what the framers intended by the
addition "Nigerian."
Considering that in statutory interpretation, draftsmen are to be taken to
have intended a purpose (and not supplicate) for words in texts, is it
possible that this provision speaks to companies owned by Nigerians in which
case a company that does not come within this characterization (such as a
foreign oil company) is not a Nigerian company and does not have Nigerian
nationality?
Nigerian laws that might have assisted in reconciling this issue are silent.
The NIPC Act does not define a foreign company to enable one form an opinion
as to whether foreign oil companies that have been incorporated in Nigeria
are still "foreign" in spite of such incorporation, or "Nigerian."
Similarly, Chapter III of the Constitution that defines a Nigerian citizen
and that might have helped in determining whether these oil companies have
Nigerian nationality does not cover legal persons. Indeed, in most
countries, legal persons are not covered in the meaning of citizens; they
are said not to be capable of personal loyalty to the country (See Dolzer &
Stevens Bilateral Investment Treaties, 1995). The Interpretation Act also
does not provide any insight.
Regulation 23(2) of the First Schedule of the Petroleum Act defines a
"Nigerian Company" as including both companies incorporated in Nigeria (such
as foreign oil companies), and companies controlled directly or indirectly
by Nigerian citizens. Such a definition is however contrary to that provided
in the Fifth Schedule Part I of the Constitution which suggests that foreign
companies incorporated in Nigeria are foreign companies.
Item 19 of that schedule states "foreign companies" or "foreign enterprises"
mean companies or enterprises in which the controlling shares are owned by
persons other than the Government, its agencies or citizens of Nigeria or
whose policies are determined by persons organizations outside Nigeria."
Thus, to the extent that the control and equity of foreign oil companies
lies in their non-Nigerian parents/shareholders, by the above definition
these companies are deemed foreign companies.
On the face of it, adopting the Petroleum Act that defines "Nigerian
company" for the purposes of a certain paragraph under that Act may mean
locally incorporated foreign companies are Nigerian in the context of the
oil sector. In the absence of this definition outside petroleum laws, other
foreign companies may be construed as foreign, following the definition in
the Constitution that defines "foreign company" for the purposes of Code of
Conduct.
It is therefore possible that two locally incorporated foreign companies may
at once be Nigerian and foreign. It is not clear whether the courts would
wish for such a situation to prevail.
The consequences of these companies, failure to be locally incorporated have
repeatedly been examined by Nigerian legal practitioners on behalf of
anxious clients and there is in fact a number of published articles in this
respect. It is common ground that such transactions may be illegal and
therefore unenforceable by virtue of s. 54 of CAMA.
However, the implications of the corporate nationality that these companies
derive when they go through local incorporation, in light of the above
provisions and how this may affect their protection on the international
plane, is yet to come up for examination.
Consequences of corporate nationality
The significance of corporate nationality increased sharply following the
1970 land mark judgment in the Barcelona Traction, Light and Power Company
case (Belgium vs. Spain) in which the ICJ held that a company assumes the
nationality of the country in which it is incorporated and registered. In
that case Belgium sued Spain for the loss its nationals suffered as a result
of alleged acts of Spain in a company which carried on business in Spain and
was incorporated in Canada, but owned by Belgian nationals.
The ICJ ruled that only Canada could bring a claim on behalf of the company
in the circumstances. In effect, in international law, it is the country of
incorporation that can diplomatically protect a legal person generally.
The question of corporate nationality is therefore an important one, an area
that is, as we have seen, misunderstood under Nigerian laws. It is important
however to state that while corporate nationality continues to play a very
significant role in the protection of the legal person on the international
plane, developments now exist that afford the legal person options.
This is because, apart from contractual devices which these foreign
companies employ to protect their investment, they now more easily bring
direct claims against their own countries, while it is not only the country
of nationality that is competent to maintain an action on their behalf on
the international plane because of an exception to the diplomatic protection
principle.
Direct claims by foreign companies against their host states
1. The International Convention for the Settlement of Investment Disputes
(ICSID) of 1965 has proved extremely successful in allowing claims of
foreign investors against states. Although under this regime, it is only the
nationals of other countries that can bring a claim against a host country
consistent with the international law principles pointed out above, this
convention, mindful of the hardship this works against locally incorporated
foreign companies allows such companies to bring claims against their
countries, provided the host country agrees.
Such agreements are typically provided for under Bilateral Investment
Treaties these days and it is very common place for a foreign company that
is locally incorporated to bring a claim against its country of
incorporation within the ICSID framework.
2. The international human rights framework has also proved helpful in some
cases. Under the international human rights jurisprudence, the notion of
human rights has now been expanded to include economic rights; a legal
person, as against natural person can now bring a human rights claim; and
importantly, nationals can bring claims against their own countries,
contrary to classical international law principles.
This manifests under the European Human Rights regime, the most advanced so
far, a model that is followed by the new African Human Rights Court which
Nigeria is not only a signatory to, but ratified through the African Charter
of Human and Peoples Rights Act.
Exception to diplomatic protection
Article 11(b) of the recent 2006 International Law Commission Articles on
Diplomatic Protection states: "A state of the nationality of shareholders in
a corporation shall not be entitled to exercise diplomatic protection in
respect of such shareholders in the case of an injury to the corporation,
unless .(b) the corporation had, at the date of injury, the nationality of
the state alleged to be responsible for causing the injury, and the
incorporation in that state was required by it as a precondition for doing
their business."
Consequently, these Articles have now made it possible for the country of
the parent/shareholders to bring an international claim on behalf of the
locally incorporated company if it had to be incorporated locally by the
laws of the host country as a pre condition to doing business in that
country, a situation that exists in Nigeria by s. 54 of CAMA.
This principle came up for examination in the Dallio case (Republic of
Guinea vs. Democratic Republic of Congo) which came up before the ICJ this
year. In that case Dallio, a Guinean who had been living in Congo (then
Zaire) since 1964 set up two companies in the 1970s, Africom-Zaire and
Africontainers-Zaire. He was arrested, detained and then expelled from Congo
in the 1990s for demanding debts outstanding in favor of his companies from
two Congolese oil companies in which government was a shareholder.
Guinea sought an action of diplomatic protection against Congo before the
ICJ for (1) individual personal injuries Dallio suffered (2) direct rights
that he suffered as a shareholder of the two companies and (3) the rights of
the two companies.
Congo filed a preliminary objection contending, amongst others that Guinea
lacked standing to bring a claim on behalf of these two companies, being
companies incorporated under Congolese laws and therefore Congolese
corporate nationals.
The ICJ agreed with Guinea that it had standing to bring a claim under (1)
and (2) above, but rejected the third. The court held that being companies
incorporated in Congo, they were of Congolese nationality and only Congo
could generally bring a claim on their behalf. The court disagreed with
Guinea that Article 11(b) of the ILC Draft Articles applied, explaining that
having entered Congo in the 1960s, Dallio's businesses were not established
under Congolese laws as a precondition to doing business there.
From the above, apart from human rights regime which is far less travelled
for the protection of investments it is clear that companies with foreign
parents/shareholders are better protected in international law as this
allows such companies to bring claims against their own states under the
ICSID system and at the same time have their parents' countries protect
them.
The result is that it almost borders on professional malpractice for
international lawyers not to advise clients where they are 100 % nationals,
to set up companies outside the country, and then use them to control their
local investments, a practice known as round tripping, but which has been
upheld by at least one international tribunal (Toki Tokeles vs. Ukraine).
Conclusion
I have tried to show in this column the significance of corporate
nationality in the protection of foreign companies. We have seen that the
meaning of "foreign" or "Nigerian" company is confused in our laws, and this
is especially important in our oil sector that is dominated by foreign oil
companies that are made to be locally incorporated.
Although there are now developments that provide protection options for the
locally incorporated foreign company, it is time that we reconciled this
part of our laws to the international meaning of corporate national.
