Funmilayo Odude, Legal Practitioner, Damod Law Practice

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NPA-Intels imbroglio as a case of frustration not illegality 09 Nov 2017

The spat between the Nigerian Ports Authority (NPA) and Integrated Logistics Services Limited (Intels), a leading maritime and oil and gas logistics firm, over the latter's failure to comply with the Treasury Single Account (TSA) policy of the Federal Government (FG) would, from all indications, be resolved. The last piece of news over the issue as at the time of writing this article was that Intels apologized and promised to comply with the policy.
According to the Attorney General of the Federation (AGF), the boats pilotage monitoring and supervision agreement, which allowed Intels to collect revenue on behalf of NPA, was void ab initio and thus incurable. But from all indications, the agreement can be cured by compliance. This is why I believe the position adopted by the AGF that the contract is illegal is on shaky ground. A better ground for the termination of the contract would have been by invoking the 'doctrine of frustration'.

Nigeria has had a poor record in implementing Public-Private Partnerships (PPPs) and concessional agreements. Part of the reason is the inability of the government to fully honour the terms of contracts. There are several instances where the government has, in the middle of a project, unilaterally changed the terms. In such instances, the affected parties have either had to make the best of the new situation or lose out completely. To be clear, there have been situations where supervening factors made contracts unimplementable based on the terms initially agreed upon.

For instance, there are two examples that made it to our courts. On the 27th of December, 2001, the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) entered into an agreement with Units Environmental Services Limited (UESL) to build a staff housing facility for the Commission. The following year, the Certain Political, Public and Judicial Office Holders (Salaries and Allowances, etc.) Act was enacted. Though the Act was enacted in 2002, it was given retroactive effect to commence on the 29th of May, 1999.  
The Act prescribes salaries, allowances and fringe benefits for certain political, public and judicial officers of the federation. In effect, it covered officers of RMAFC. Under the Act, accommodation was to be provided – or payment of 100% was to be made – to the staff.

RMAFC then revoked the contract with UESL, arguing that the legislation, which was enacted after the contract was signed, gave the government the responsibility to provide accommodation for its staff. RMFAC argued the contract had become void by reason of illegality. When the dispute was referred to arbitration as stipulated in the contract, the sole arbitrator took a moral high ground and awarded damages against RMAFC. His reasoning was that the FG could not, after receiving benefit under the contract, enact a law with retroactive effect and invalidate the contract. He was of the view that the FG was acting contrary to public policy.

The Court of Appeal – while determining the appeals by RMFAC to set aside the arbitral award and by UESL to enforce it as a judgment – found that there was nothing in the Act that barred the Commission from entering an agreement to build staff quarters. This raises the question of what would have been the court's position assuming the Act prohibited such a contract. The court made some germane remarks about frustration of contracts that could provide clarity to the current issue between NPA and Intels.

The court defined a contract as being frustrated, when after the contract has been executed, events occur to make the performance of the contract impossible, illegal or radically different from what was in the contemplation of the parties at the time of contracting. Some of the supervening events that can frustrate a contract include subsequent legal changes and acts constituting force majeure, i.e. destruction of the subject matter of the contract, outbreak of war, or government acquisition of the subject matter of the contract.

The more interesting example is the one involving the 76 oil wells located in the Atlantic Ocean, which Cross River State laid claim to for the purpose of collecting derivation fund on them. On the 10th of October, 2002, the International Court of Justice (ICJ) ruled that Bakassi was Cameroonian territory. The complete handover of the peninsula, however, did not take place until six years later, in 2008. Prior to the ICJ judgment, Bakassi formed the southern part of Cross River State. Surrounded by the Atlantic Ocean, this made Cross River one of Nigeria's littoral states (a state adjacent to, lying along, adjoining or bordering the shore; a state that opens directly to or has contiguity with the Atlantic Ocean).

After the ICJ judgment, then-President Olusegun Obasanjo began negotiations with Cameroon, hoping to get Cameroon to allow Nigeria to continue to have sovereignty over the western part of the Bakassi peninsula. While those negotiations were ongoing, he also brokered an agreement between Cross River, Akwa Ibom and Rivers States on the sharing of offshore oil wells. It was under this agreement that Cross River took ownership of the 76 offshore oil wells.

The negotiations with Cameroon fell through and the entire peninsula became Cameroonian territory, leading to the complete handover of the territory in 2008. The 76 offshore oil wells, which had previously been given to Cross River State, were later ascribed by RMAFC and National Boundary Commission to Akwa Ibom State. The Cross River State government strongly disagreed with the decision and sued Akwa Ibom State and the FG, seeking to enforce the previous agreement, which had attributed the 76 offshore oil wells to it.

The Supreme Court was of the view that the agreement Cross River State sort to enforce had become impossible to perform due to a subsequent change in circumstances. Under maritime law, only littoral states are entitled to the attribution of offshore oil wells or fields within 200-meter water depths isobaths within their maritime territory. Cross River was such a state prior to 2008. But when the Bakassi peninsula was handed over to Cameroon, Cross River became a landlocked state with no connection to the ocean. In effect, the agreement had become 'frustrated' by the supervening change of territorial sovereignty over Bakassi.

Let us now take a closer look at the NPA/Intels saga. The boats pilotage and supervision agreement was signed in 2010 for a validity period of 10 years. While the full terms of the agreement are not public, we know that the issue in contention is over the part of the agreement that allows Intels to collect pilotage payments made by ship owners on behalf of the NPA and take 28% of all such revenue collected as commission.

The management of NPA has stated that after the TSA policy was introduced by the FG, it dialogued with Intels for a period of 14 months, asking the logistics firm to comply with the policy. The Authority said it provided reassurances to Intels, including the payment of its commission from the TSA. When Intels refused to accept the Authority's request, the NPA sought direction from the AGF who stated that the contract was illegal as it violated the provisions of Sections 80 (1) and 162 (2) and (10) of the Constitution.

These sections deal with the Consolidated Revenue Fund and the Federation Account “into which shall be paid all revenues collected by the Government of the Federation,” excluding the personal income tax of some classes of people. There is nothing in these provisions that make it illegal for a party to act as collecting agent for the government and be paid commission for providing such services. Even SystemSpecs, a financial technology firm, is paid a percentage of the revenue collected for its Remita platform used as the payment gateway for the TSA. The collecting clause does not breach the Constitution.

The Constitution does not provide a practical mechanism for collection of the revenues of the Federal Government and its different ministries and parastatals. It is the TSA policy that did that. The FG created the TSA policy to create a centralized system and thus created the practical workings of remittance of funds into the Federation Account. If anything has been breached at all, it is the TSA policy.

It is very important to isolate the bone of contention. It is not the fact that Intels acts as a collecting agent of the FG (several other companies do as well, and the Constitution does not forbid it); neither is it about the percentage due to INTELS as commission. Rather, it is about the modalities of operations. Prior to the TSA policy, Intels collected the revenue, deducted its commission and remitted NPA's balance to it. With the TSA policy, revenue accruing to NPA, like other agencies and parastatals of government, must go into the centralized account.

The TSA policy of the Federal Government was not in operation at the time of the execution of the agreement between NPA and Intels. If the agreement is to be terminated based on the refusal of Intels to comply with the NPA directive, it should be done on the basis that the modalities of revenue collection under the contract has now been frustrated by the TSA policy. It is important to make this distinction between illegality and frustration.

A Financial Nigeria columnist, Funmilayo Odude is a Lagos-based legal practitioner, and a public affairs analyst.