Court provides relief for Nigeria’s drilling rig operators

Operators of drilling rigs are heaving a sigh of relief from the strong arm tactics of the Nigerian Maritime Administration and Safety Agency and its debt collection agencies following the decision of the Court of Appeal which declared that the extension of the Cabotage Act to drilling rigs by the Transport Minister’s Cabotage Guidelines is unlawful and invalid, writes Davidson Iriekpen

There is jubilation in the air and a sigh of relief for operators of drilling rigs following the clarification by the Court of Appeal in Lagos on whether a drilling rig is a vessel under the Coastal and Inland Shipping (Cabotage) Act 2003. Delivering judgment in an appeal filed by Transocean Support Services Nigeria Limited against the decision of the Federal High Court in Lagos, in its case and three others against the Nigerian Maritime Authority and Safety Agency (NIMASA) and Minister of Transport, the court in a unanimous decision, held that an oil drilling rig is not a vessel and not engaged in coastal trading (cobotage) within the meaning of Sections 2 and 5 of the Cabotage Act.

Justice Abimbola Obaseki-Adejumo who delivered the lead judgment, also held that a drilling rig is not one of the vessels requiring registration pursuant to section 22(5)(m) of the Cabotage Act and that the listing of drilling rigs in paragraph 9.1.1C of the Cabotage Guidelines 2007 as one of the “foreign vessels” eligible for registration and thus liable to pay two per cent cabotage surcharge was unlawful and invalid.

Before the judgment, there was confusion regarding the applicability of the Cabotage Act to drilling rigs, especially jackup rigs and drill ships, and the liability of drilling services providers to contribute two per cent of the nominal amount of drilling contracts performed by them into the Cabotage Vessel Financing Fund pursuant to sections 42 and 43 of the Cabotage Act.

The confusion was said to have arisen in 2007 when the Minister of Transportation purported to issue a guideline for the implementation of the Cabotage Act (Cabotage Guidelines 2007) in which he listed drilling rigs in paragraph 9.1.1C of the Cabotage Guidelines 2007 as one of the “foreign vessels” eligible for registration and thus liable to pay two per cent cabotage surcharge.

Pursuant to Cabotage Guidelines 2007, NIMASA appointed debt collection agents whom it directed to issue cabotage surcharge demands to companies involved in drilling operations in Nigeria.

Consequent upon this, a number of drilling companies challenged the demand notices issued by NIMASA’s debt collectors at the Federal High Court. For example, in Noble Drilling v NIMASA, Justice Dan Abutu held that drilling rigs were not vessels for the purpose of the Cabotage Act, and that the were not engaged in cabotage and were not among the vessels listed in section 22(5) of the Cabotage Act, but his decision was reversed by the Court of Appeal on procedural grounds. The appellate court held that Noble Drilling did not compl with the requirement to seek and obtain leave for the issuance and service of process out of jurisdiction.

In the case of Seadrill Mobile Units Nigeria Limited v Minister of Transport, Justice Babs Kuewumi took the opposite view. He held that drilling rigs were vessels under the Cabotage Act, and were engaged in cabotage and were caught by section 22(5)(m) of the Cabotage Act.

Transocean Support Services Nigeria Limited, through its lawyer, Professor Fidelis Oditah (SAN), equally filed a suit against NIMASA and Minister of Transport at the court. But the trial judge, Justice Rita Ofili-Ajumogobia, dismissed the proceedings on the grounds that they were not issued within three months of receipt of the NIMASA debt collector’s demand notices and consequently were statute-barred pursuant to Section 2 of the Public Officers Protection Act (POPA). The judge left the substance of the case which were whether drilling rigs were vessels and whether they were engaged in coastal trade, and whether they were listed in section 22(5) of the Cabotage Act unanswered.

Aggrieved by the decision, Transocean Support Services Nigeria Limited proceeded to the Court of Appeal. And in a unanimous decision, the Court of Appeal reversed her decision. Pursuant to Section 16 of the Court of Appeal Act, which gave it power to hear the case as if it were sitting as a first instance court, accepted Transocean’s invitation to decide the merits.

Justice Obaseki-Adejumo who read the lead judgment, held that only vessels engaged in coastal trade are liable to pay into the fund the two per cent of the contract sum performed by such vessel. She added that drilling rig, like the one owned and/ or operated by the appellants cannot represent a vessel within the definition under the Cabotage Act.

The appellate court judge submitted that without any modicum of doubt, by the definition under the Act, a vessel must be designed, used or capable of being used solely or partly for marine navigation and used for the carriage of persons or property on, through or under water without regard to method or lack of propulsion. She stressed that unless a drilling rig falls within this definition and/or is expressly stated to be among the machineries contained in section 22(5)(a) -(m), same cannot be deemed to be a vessel eligible for registration under Section 22(1) of the Cabotage Act and liable to pay a surcharge of two per cent of the contract sum performed by such vessel engaged in coastal trade.

Justice Obaseki-Adejumo equally noted that under the Cabotage Act, a rig is not listed as one of the vessels that are to be registered and it is also not involved in the transportation of goods or passengers from one point in Nigeria to the other. She clarified a very important aspect of Nigerian maritime law when she accepted Transocean’s arguments that drilling rigs are not vessels under the Cabotage Act.

The appellate judge noted that under the Cabotage Act, the definition of “ship” under the Admiralty Jurisdiction Act as including rigs did not assist in the construction of “vessel” under the Cabotage Act as the objects of both legislation differed, that drilling rigs were not engaged in coastal trade and were not listed in section 22(5) of the Cabotage Act among the vessels requiring registration. She concluded that the extension of the Cabotage Act to drilling rigs by the Transport Minister’s Cabotage Guidelines was an unlawful and invalid exercise of delegated legislative power, paragraph 9.1.1C of the Guidelines exceeded the power to make rules for the implementation of the Cabotage Act and was void.

“I am, therefore, not persuaded by the argument canvassed by the 1st respondent’s counsel that drilling rigs are vessels within the meaning of section 22(5)(m) of the Cabotage Act. To my mind, drilling rig cannot therefore be deemed to be a vessel for the purpose of section 22 of the Cabotage Act and liable to the two per cent surcharge under Section 43 of the Act.

“As I have found that drilling rigs do not fall within the definition of vessels under the Act, and in particular, section 22(5)(m) of the Cabotage Act, it follows that the attempt by the Minister of Transport to list Rigs under the head of ‘Foreign Vessels’ in Paragraph 9.1 of the Cabotage Guidelines, so as to make them liable to pay two per cent surcharge, is not proper. The essence of the guideline as a subsidiary legislation is to give effect to the principal legislation and not to deviate from same; it cannot expand or curtail the provision of the substantive statute.

“Drilling rigs are used to locate and extract water, oil, gas or any other product from the earth. They can be used onshore or offshore and are configured to match the product and environment in which they operate. They are not used for marine navigation and ipso facto not used for coastal trade as envisaged under section 2 of the Cabotage Act which prescribes that coastal trades involves carriage of passengers and goods by vessel.

“Under the Cabotage Act, a rig is not listed as one of the vessels that are to be registered and it is also not involved in the transportation of goods or passengers from one point in Nigeria to the other. I am therefore not persuaded by the argument canvassed by the 1st respondent’s counsel that drilling rigs are vessels within the meaning of section 22(5)(m) of the Cabotage Act. To my mind, drilling rig cannot therefore be deemed to be a vessel for the purpose of section 22 of the Cabotage Act and liable to the two per cent surcharge under Section 43 of the Act, the judge held.

The court also held that the limitation period contained in the Public Officers Protection Act did not apply to the making of the Cabotage Guidelines, with the result that the Guidelines could be challenged outside the three month time limit for challenging administrative acts of public officers.

Many stakeholders in the oil and gas sector believe that the case is important because it is the first appellate decision on the vexed question whether drilling rigs are vessels and/or engaged in coastal trade under the Cabotage Act when performing drilling operations. Operators of drilling rigs heaving a sigh of relief from the strong arm tactics of NIMASA and its debt collection agencies which, on occasion, have included boarding drilling rigs and disrupting drilling operations.

 

Source: This Day

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