A Nigerian court has struck down a contract clause that charged 177 percent a year on late payments, in a ruling that favours Halkin Exploration and Production Ltd. in its dispute with Eunisell Ltd. over an oilfield service agreement.
The High Court of the Federal Capital Territory in Abuja found that Clause 10.4 of the companies’ service agreement is an unenforceable penalty clause. The court said it was designed to terrorise the claimant, Halkin E&P. Justice S.B. Belgore delivered the judgment on Oct. 22.
Under the clause, Halkin E&P had to pay a late-payment charge of 0.5 percent a day on outstanding sums. That is equivalent to about 177 percent a year on a compound basis. Eunisell used the provision to claim millions of dollars in accumulated charges, reportedly more than ten times the underlying debt.
“Clause 10.4 of the Service Agreement between Halkin Exploration and Production Limited and Eunisell Limited dated 20th January 2022, which imposes an annual default fee of 177% (equivalent of 0.5% per day), is null, void, and of no legal effect whatsoever,” the court said in its judgment.
The court went further than striking the clause. It said it was “setting aside, quashing, nullifying and invalidating all late payment/default invoices, bills and/or assessments, howsoever described, predicated on Clause 10.4” of the agreement. Those are the invoices Eunisell issued against Halkin E&P. The order removes the basis for the multimillion-dollar sums Eunisell had claimed under the clause.
Chikaosulu Ojukwu, a Senior Advocate of Nigeria who represents Halkin E&P, welcomed the decision.
“This decision is a victory for the rule of law and vindicates the consistent position maintained by our client, Halkin E&P, that the impugned clause in the agreement was contrary to public policy and therefore unenforceable,” he said.
Ojukwu said Eunisell had tried to use the clause to secure “an unjustified financial windfall.” He called the case “a classical case of get rich quick.”
Halkin E&P alleges that Eunisell abandoned the oil well in the middle of the night, without notice, and damaged the wellhead. Those allegations come from the company and its counsel, and
Eunisell’s position on them wasn’t included in the material available for this report.
Ojukwu said Halkin E&P will pursue a $50 million claim against Eunisell through the appropriate legal proceedings. He didn’t say when or where it would be filed.
