The lawsuit initiated by the Federal Republic of Nigeria (“FRN”) against Process Industrial Developments Limited in the Commercial Court stands out as one of the most substantial international disputes related to arbitral enforcement. The anticipated verdict holds the potential to impart valuable insights to commercial entities, governments, and arbitrators.
This legal matter revolves around the impact of alleged bribery, fraud, and corruption in the contract procurement process on the enforcement of an arbitration award. The court is tasked with examining critical aspects concerning English public policy, the doctrine of separability of arbitration agreements, and the delicate balance required between upholding the finality and non-intervention principles of arbitration awards (as outlined in Section 1 of the Arbitration Act 1996) and addressing challenges to an award in the presence of fraud allegations.
Fact of the Case
The matter revolves around the enforceability of three arbitration awards (referred to as the “Awards”) issued in favour of P&ID against the Federal Republic of Nigeria (FRN) by a London tribunal on July 3, 2014, July 17, 2015, and January 31, 2017. These awards stem from a 20-year Gas Supply and Processing Agreement (GSPA) dated January 11, 2010. The agreement involved the Nigerian Ministry of Petroleum Resources (MPR) supplying “wet” gas to P&ID, with P&ID undertaking to construct a facility to process the wet gas into “lean” gas suitable for power generation. The GSPA was part of the MPR’s Associated Gas Development Project (the “Project”), aiming to address gas flaring issues and provide additional energy to Nigeria’s power grid.
However, the contract was never executed by either party. The tribunal determined that the FRN repudiated the GSPA by failing to fulfil its obligations, awarding P&ID damages totalling US$6.6 billion plus interest. The outstanding amount, including interest, now stands at approximately US$11.1 billion.
P&ID initiated enforcement proceedings in the English High Court on March 16, 2018, under Section 66 of the 1996 Act, along with parallel proceedings in the United States. On August 16, 2019, Butcher J ordered the enforcement of the Awards, dismissing FRN’s argument that the seat of arbitration was Nigeria, not England. At a subsequent hearing on September 26, 2019, Butcher J granted FRN permission to appeal on matters concerning the seat of arbitration, and this appeal is currently awaiting a decision from the Court of Appeal.
On December 5, 2019, FRN sought an extension of time to challenge the Awards under sections 67 and 68(2)(g) of the 1996 Act. Simultaneously, FRN applied for relief from sanctions to introduce new evidence resisting the Awards’ enforcement. On January 29, 2020, Flaux LJ, the supervising judge of the Commercial Court, stayed the appeal from Butcher J’s enforcement order, pending the outcome of the hearing on FRN’s applications.
On September 4, 2020, Sir Ross Cranston found a strong prima facie case that the GSPA was procured by bribery and granted FRN’s applications for an extension of time to challenge the Awards and for relief from sanctions to introduce new evidence.
The substantive application to set aside the Awards commenced on January 23, 2023, before Mr. Justice Robin Knowles in the Commercial Court. Oral closing arguments were concluded on March 9, 2023.
FRN’s case and P&ID’s defence
FRN is challenging the Awards on two primary grounds:
(1) the lack of substantive jurisdiction by the tribunal (under s. 67 of the Act), and
(2) the contention that the award was obtained through fraud or the manner in which it was procured goes against public policy (under s. 68(2)(g) of the Act).
Challenge under Section 68(2)(g) of the Act:
In addition to asserting fraud, corruption, and procedural irregularities under Nigerian law, FRN asserts the following:
- The GSPA was secured through bribes to insiders and high-ranking Nigerian government officials as part of a broader plan to defraud Nigeria.
- Mr. Quinn, P&ID’s main witness (now deceased), allegedly provided false testimony to the tribunal. Contrary to his statements, FRN claims that P&ID was incapable of fulfilling the contract.
- FRN argues that the jurisdiction and liability phases of the arbitration were compromised by the conduct of FRN’s advocate, who allegedly made payments to government officials and deliberately presented a weak defence, leaving the tribunal with no choice but to rule in favour of P&ID.
P&ID denied these allegations, asserting that payments made to government officials were unrelated to the GSPA. P&ID contended that even if bribery allegations were proven, English law does not mandate non-enforcement on those grounds, citing Honeywell v Meydan Group LLC [2014] 2 Lloyd’s Rep 133 and National Iranian Oil Co v Crescent Petroleum [2016] 2 Lloyd’s Rep 146.
FRN argued that, unlike the appellants in Honeywell and National Iranian Oil, they did not make bribery allegations during the arbitration, and the tribunal did not make any findings on the matter.
Challenge under Section 67 of the Act:
Regarding this aspect, the separability principle came into play, requiring FRN to demonstrate that the arbitration clause itself was procured through specific fraud aimed solely at that clause. It was insufficient to allege bribery in connection with the GSPA. This principle was recognized in both Nigerian and English law.
FRN claims that P&ID bribed Ms Taiga, the legal adviser at the Ministry of Petroleum Resources, to secure favourable terms for the GSPA, including a London arbitration clause. FRN argued that this clause singled out P&ID’s contract from others under the Project. P&ID counters that there is no evidence of bribery for the arbitration clause, FRN had not proven the alleged Nigerian government policy violation, and the arbitration clause had approval from the Nigerian Minister of Petroleum Resources and the Attorney General’s office at that time.
In the Commercial Court in London (The Court of Appeal), Nigeria contested the Liability Award, the Final Award, and an award on jurisdiction issued by the arbitration tribunal. Nigeria accused P&ID of bribery and corruption, both preceding and following the agreement on the Gas Supply and Processing Agreement (GSPA). Furthermore, Nigeria alleged that the entire arbitral process, from the agreement to the Final Award, was tainted by corruption. It contended that some of its legal representatives during the arbitration, including two leading Counsel, were influenced by P&ID. In response, P&ID explicitly labelled Nigeria’s case against it as “false and dishonest.”
The Judgement
The Appeal Court in its final decision held that Nigeria succeeds on its challenge under Section 68 of the English Arbitration Act 1996. It also held that the awards were obtained by fraud and the way in which they (the awards) were procured were contrary to public policy and therefore set aside the awards delivered by the Arbitration Tribunal.
The court further stated that what happened in this case was very serious indeed, and it is important that section 68 had been available to maintain the rule of law.
Section 68(3) provides:
“(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may:
(a) Remit the award to the tribunal, in whole or in part, for reconsideration,
(b) Set the award aside in whole or in part, or
(c) Declare the award to be of no effect, in whole or in part.
The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.”
Conclusion
The core of this case revolves around fundamental contract principles and the profound repercussions of breaching any contractual term. The outcome of the Commercial Court’s decision held immense significance, as both parties presented robust cases. Had the decision swayed differently, Nigeria would have faced substantial liability, potentially leaving a lasting impact on its economy. The damages claimed in the dispute amounted to a third of Nigeria’s total annual budget for 2023 and five times its health budget.
Furthermore, the verdict carries broader implications for Nigeria’s global image. Historically, Nigeria has been portrayed as one of the most corrupt and fraudulent countries globally. However, winning a case against allegations of fraud and corruption involving a foreign company in a foreign jurisdiction, despite the complexity of the dispute, marks a historic triumph. This judgment is perceived as a landmark victory, signaling a clear message that assumptions about exploiting African nations should be reconsidered.
The case underscores the importance of understanding and upholding contractual obligations, recognizing the potential magnitude of legal consequences that may follow a breach.
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