Nigeria LNG Limited (NLNG) had its claim to non-liability to indemnify oil trading firm Taleveras dismissed at appeal in a ruling against it by a London high court.
The decision at the appellate court followed an earlier ruling at the lower court that awarded $380 million against Nigeria’s biggest LNG producer and in favour of oil trading firms Vitol SA and Glencore Energy UK.
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The Business and Property Courts of England and Wales held Wednesday that the lower court’s interpretation of an earlier declaration by an arbitral tribunal asking NLNG to indemnify Taleveras regarding the sum it was obliged to pay Vitol SA and Glencore Energy from the deal is in order.
Besides its claim of non-liability to indemnify Taleveras, NLNG also sought an injunction barring the oil trader from executing the indemnity pertaining to the Vitol Award, according to a court document seen by PREMIUM TIMES.
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Dubai-based Taleveras, founded in 2004, is owned by Nigerian entrepreneur Charles Igho Sanomi.
At the crux of the dispute was whether the orders granted by an arbitration panel only applied to the ones in the final dispositive part of its award or they also included issues the panel said it was ordering in a previous section but not stated in the final dispositive section.
Among NLNG’s grouses was that the indemnity was a condition precedent to paragraph 607 of the analysis section of the award. The company asserted that the panel in the Vitol Award ought to have approved “its award as to the applicability of the Indemnity to the sums awarded.”
The controversial paragraph 607 states that “The Tribunal further orders that the terms of this indemnity be drawn forthwith to the attention of the tribunals seised of the Vitol and Glencore arbitrations, and that any eventual enforcement of this indemnity be subject to the endorsement of those tribunals as to its applicability in the context of any award and, in particular, any consent award, made in either of those proceedings.”
The bungled deal
The dispute had its roots in a 2020 sales contract between NLNG – a joint venture comprising state-owned NNPC Limited, Eni, Shell and TotalEnergies – and Taleveras, requiring the former to supply the latter gas.
NLNG failed to deliver 19 cargoes between 2020 and 2021 as agreed by the parties, causing Taleveras as well as Vitol SA and Glencore (the firms to which Taleveras had pre-sold the goods) to miss the windfall that a surge in the price of gas had created for oil dealers when Russia invaded Ukraine in February 2022.
In January 2023, an arbitral tribunal of the United Nations Commission on International Trade Law asked NLNG to compensate Taleveras for the profit it lost on the cargoes. It also directed NLNG to provide indemnity for Taleveras to cover the money the commodity trader was required to pay in different arbitrations with Vitol SA and Glencore.
The panel in the Vitol Arbitration awarded damages worth $233.3 million against Taleveras in December 2023.
In reaction, NLNG instituted a legal action a month later, challenging the decision for the reason that it was a precedent condition to paragraph 607 of the analysis section of the award.
Taleveras denied the indemnity required that the Vitol Award be approved “as to its applicability” on the basis that paragraph 607 was not included in the final dispositive section of the award.
Its amended defence of March 2024 noted that the panel in the Vitol Arbitration had earlier released an addendum and final additional award which incorporated, as part of the award, an endorsement that the cash awarded to Taleveras against NLNG “fall within the scope of the indemnity.”
NLNG later contended that the arbitrators in the Vitol Award lacked the jurisdiction to add the addendum to its award. It further maintained that, considering that the arbitration had already been concluded, their agreement with the parties had also ended, making their actions to fall outside the ambit of the laws governing the arbitration.
High Court Judge Pelling KC ruled in July 2024 that “as a matter of the proper interpretation of the Award, the Indemnity was not contingent on or subject to any declaration in the Vitol Arbitration or the Glencore Arbitration to the effect that the sums awarded fell within the scope of the Indemnity.”
He consequently laid aside NLNG’s claim and gave Taleveras leave to enforce the indemnity pertaining to the Vitol Award.
The verdict
Lord Justice Phillips, the lead of the three judges that decided the suit, described NLNG’s claim that the high court judge misinterpreted some of the words of the arbitration tribunal as lacking merit. He added that the final dispositive section clearly issued distinct, unambiguous orders.
“In this regard, it is not as if the part of paragraph 607 relied on by NLNG addressed a subject matter that was not dealt with in the dispositive section,” he said.
He remarked that the need for possible approval by the Vitol or Glencore arbitral panel was clearly addressed in parts of the dispositive section.
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“It is perhaps unfortunate that the Tribunal used the words “further orders” in paragraph 607 of its analysis section, but that loose wording does not come close, in this case, to undermining the clear structure of the Award and in particular the meaning and comprehensive effect of its dispositive section.”
The judges unanimously laid aside the appeal, upholding the lower court’s ruling.
Editor’s Note:
This story has been edited to reflect the actual beneficiaries of the $380 million award against NLNG.
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