Summary
4 September 2020: Sir Ross Cranston, sitting in the Commercial Court in London, has made an extraordinary order granting permission to Nigeria to mount a late challenge to the massive US$10 billion arbitration award in favour of P&ID, on the grounds that the contract and award were tainted by corruption and fraud.
The decision takes Nigeria a step closer to avoiding this massive liability and unravelling another crisis created by the corruption which still stalks Nigerian business.
Background
In 2010, Nigeria entered into a contract (called the 'GSPA') with P&ID whereby P&ID would build a gas processing facility to which Nigeria would supply natural gas. P&ID would extract natural gas liquids, which it would retain and sell, and would return 'lean' gas to Nigeria.
The GSPA quickly fell apart and was abandoned, and arbitration was commenced by P&ID against Nigeria in 2012. P&ID claimed the massive profits which they would have made under the 20-year contract.
Nigeria defended the arbitration but without deploying strong evidence or arguments against P&ID's case.
In the final award on quantum in the arbitration, which was made by two members of the Tribunal – Lord Hoffmann and Sir Anthony Evans – but dissented in by third arbitrator Chief Bayo Ojo, Nigeria was ordered to pay P&ID US$6.6 billion plus interest, one of the largest arbitration awards in history. By the time of the latest judgment on 4 September 2020, the award debt had reached US$10 billion.
Nigeria's early attempts to challenge the award
In 2018 Nigeria had sought to challenge, before the English Commercial Court, the decisions of the Tribunal that Nigeria had repudiated the GSPA and that P&ID was entitled to damages. The challenge was dismissed on paper. This turned out to be a significant strategy because later, Nigeria applied to the Nigerian court to challenge the award, contending that in fact, the seat of arbitration was Nigeria.
When P&ID sought to enforce the award, Nigeria resisted enforcement and was given permission to do so out of time, on the grounds that the seat of arbitration was in fact Nigeria, and not London. In September 2019, the Commercial Court disagreed and found that the seat was London, partly because Nigeria had acted inconsistently with that stance by applying to the English court to challenge the award. However, the Court did give Nigeria permission to appeal. That appeal is pending.
Nigeria's investigations into corruption
While these arguments were taking place, Nigeria in 2016 commissioned investigations into the granting of the GSPA to P&ID. Those investigations identified the crucial role that the technical committee at the Ministry of Petroleum Resources had played in awarding the GSPA to P&ID. Further investigations which were carried out in 2018 revealed significant evidence of payments being made to members of the technical committee, which appeared to have been bribes, in return for overlooking shortfalls in P&ID's bid and favouring P&ID for the award of the GSPA.
Bizarrely, large payments were also found to have been made by Nigeria's counsel in the arbitration to lawyers at the Ministry and at the Nigerian National Petroleum Corporation.
Nigeria's case was bolstered by documents procured by applications to the US District Court for the Southern District of New York under 28 USC § 1782(a), to obtain discovery of bank accounts at ten different banks. P&ID's attempt to limit the use to which Nigeria could put that evidence to criminal prosecutions was denied by the US Court Judge.
In total, payments of around £175,000 in aggregate, to various officials and their family members, were found to have been made by P&ID or people associated with them, in addition to the payments made by Nigeria's counsel. Large unexplained cash withdrawals from bank accounts of companies associated with P&ID were also identified, although evidence was not found to explain what was done with that cash.
The significance of the payments was put into context by the fact that some of the officials who received payments were being paid salaries of US$5,000 per year at the time.
The Court's treatment of the application under 67 and 68 of the Arbitration Act
The Court noted that a party seeking to challenge an arbitral award after more than 28 days must apply for an extension of time under section 80 of the Arbitration Act. The factors to be taken into account were set out in the case of Kalmneft v Glencore [2001] 2 All E.R. (Comm) 577, [2002] 1 Lloyd’s Rep 128, and include the length of the delay, whether the party making the late application had acted reasonably, whether the respondent to the application had contributed to the delay, and the strength of the late challenge for which permission was sought.
This means that a court considering an extension of time will need to make an assessment of the strength of the application, without reaching a definite conclusion (so as to leave room for the Judge who hears the application in full to make her own decision).
Extensions of time are undoubtedly difficult to secure. Popplewell J emphasised this in Terna Bahrain Holding Company WLL v Bin Kamil Al Shamsi [2012] EWHC 3283 (Comm), [2013] 1 Lloyd's Rep 86, when he said that "The party seeking an extension must therefore show that the interests of justice require an exceptional departure from the timetable laid down by the Act" [emphasis added].
Also relevant was the decision of the Supreme Court in Takhar v Gracefield Developments Ltd [2019] UKSC 13, that where a party seeks to set aside a judgment on grounds of fraud, it is not necessary to show that the evidence of fraud could not reasonably have been uncovered sooner (unless fraud was argued in the trial before the judgment, or if the applicant had deliberately decided not to investigate the fraud). In spite of arguments that this approach was not suitable for challenges to arbitral awards, the Judge felt that it properly reflected the Court's general approach that a fraudster should not be allowed to avoid justice because the fraud had gone undetected.
The Court's finding on fraud and perjury
The Judge was persuaded that Nigeria had a strong prima facie case that (1) P&ID procured the GSPA by paying bribes to Nigerian officials; (ii) P&ID's witness gave perjured evidence to the Tribunal to give the false impression that P&ID was able and willing to perform the GSPA; and (iii) Nigeria’s counsel in the arbitration dishonestly failed to challenge P&ID's perjured evidence or to seek disclosure from P&ID, such that the Tribunal had no choice but to find in its favour.
Whilst P&ID sought to explain the payments which had been revealed by Nigeria's investigations, and to justify the apparent inconsistency between the evidence given in the arbitration and the new evidence, this was firmly dismissed by the Judge as being inadequate to answer the prima facie case that P&ID had lied to the tribunal.
The Judge's findings regarding Nigeria's counsel were even more unusual. Notwithstanding that Nigeria retained a well-known senior leading Nigeria advocate to contest the arbitration, and agreed to pay a large fee of US$2 million to the lawyer, it was suggested that in fact Nigeria's counsel deliberately conducted the case so as to lose it. The Judge acknowledged that the circumstances for Nigeria's counsel appeared difficult, and that he sometimes lacked instructions. He also noted that the lawyer advanced several arguments on behalf of Nigeria against P&ID's case. However, the Judge felt that a prima facie case of corruption was established when the conduct of the arbitration was considered alongside the payments made by Nigeria's counsel to senior lawyers at the Ministry and NNPC.
The Judge was troubled by the large size of the payments, the fact that those lawyers led the settlement attempts on behalf of Nigeria, and the fact that Nigeria's counsel described the payments as gifts, an explanation which the Judge clearly found unpersuasive.
Shortly after the judgment was handed down, the Senior Advocate released a public statement in which he said that he "made every effort to defend and vindicate my client at every stage with minimal tools and with very little support from the Government itself". He pointed out that he had obtained an order in Nigeria setting aside the Award, that he had sought to challenge the evidence relied on by P&ID in the arbitration, and that the English Court's decision now confirms that there is reason to doubt P&ID's case. He denied any wrongdoing.
The Judge's decision means that Nigeria can now proceed to a full challenge to the award, before the English Court, unless this decision opens the way to productive settlement discussions.
Discussion
Nigeria has a long history of allegations of fraud and corruption, some of which have been established and some of which remain no more than assertions. Before Sir Ross Cranston, Nigeria acknowledged and relied on the fact that, in Nigeria before 2015, "fraud has been endemic … at the very highest levels, and especially in the oil and gas sector."
In several cases, such issues have only come to the surface long after they occur. In the case of IPCO v NNPC, for example, which I worked on in 2016-2018, the arbitration concluded in 2004, and evidence that IPCO had committed fraud in the arbitration only came to light in 2014. In 2018 the case settled, just before a trial was due to take place to determine whether the evidence was sufficient to establish the fraud, against IPCO's denials.
As I said in a talk to the East Africa International Arbitration Conference recently, evidence of corruption is often not deployed promptly, or at all, because (1) the perpetrators conspire to conceal it, (2) innocent witnesses are often afraid of giving evidence which shows they were aware of it (or should have been), and (3) even the victims of corruption sometimes feel that they would rather not air the dirty laundry, to prove and rely upon it.
Some or all of these features combined in the P&ID case to delay the production of the evidence of corruption. The Judge allowed Nigeria to seek to set aside the arbitration awards long after the deadline had expired. But this was an exceptional case. The size of the award, the strength of the evidence, and the egregiousness of the corruption to which it pointed all clearly influenced the Judge to allow the challenge at a late stage.
This exceptional decision to grant a long extension to Nigeria to challenge the award should not be taken as a general indication that fraud or corruption can be deployed very late to challenge an award. Although the Judge took the view that Judges should be slow to criticise victims for not identifying fraud, I would caution that other courts may be less understanding if it appears that the applicant ought to have investigated and identified the corruption or fraud at an earlier stage.
As things stand, Nigeria still owes US$10 billion to P&ID. But this decision takes Nigeria one step closer to potentially avoiding that liability and unravelling another crisis created by the corruption which still stalks Nigerian business.
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