Insights 21/03/2023
The case being brought by the Federal Republic of Nigeria ("FRN") against Process & Industrial Developments Limited ("P&ID") in the Commercial Court is one of the highest value arbitral enforcement disputes to be seen internationally. The outcome promises to offer important lessons to commercial parties, governments, and arbitrators.
The case concerns the effect on the enforcement of an arbitration award of alleged bribery, fraud, and corruption in the procurement of a contract. It falls to the court to consider significant issues concerning English public policy and the doctrine of separability of arbitration agreements as well as the need to strike a balance between the finality and non-intervention of arbitration awards (s. 1 of the Arbitration Act 1996 ("the Act")) against the ability to challenge an award where allegations of fraud exist.
The facts of this case.
This case concerns the enforceability of three arbitration awards (the "Awards") made in favour of P&ID against the FRN, by a London tribunal on 3 July 2014, 17 July 2015, and 31 January 2017. The arbitration arose out of a 20-year Gas Supply and Processing Agreement dated 11 January 2010 (the "GSPA"), whereby the Nigerian Ministry of Petroleum Resources (the "MPR") agreed to supply “wet” gas to P&ID, and P&ID agreed to construct a facility to process the wet gas into “lean” gas suitable for power generation. The GSPA was intended to be part of the MPR’s Associated Gas Development Project (the “Project”), an initiative to provide short-term solutions to the wasteful practice of gas flaring, and to supply additional energy to Nigeria’s power grid.
The contract was never performed by either side. The tribunal ruled that FRN repudiated the GSPA by failure to perform its obligations and that P&ID was entitled to damages in the sum of US$6.6 billion plus interest. The current outstanding amount, including interest, is some US$11.1 billion.
P&ID initiated enforcement proceedings in the English High Court on 16 March 2018 under s. 66 of the 1996 Act and parallel proceedings in the United States. On 16 August 2019, Butcher J ordered the enforcement of the Awards and dismissed FRN's application to resist enforcement on the grounds that the seat of the arbitration was Nigeria, not England. At a hearing on 26 September 2019 to consider consequential matters, Butcher J gave FRN permission to appeal the decision on issues concerning the seat of the arbitration. The appeal is currently pending before the Court of Appeal.
On 5 December 2019, FRN applied for an extension of time to challenge the Awards under sections 67 and 68(2)(g) of the 1996 Act. On the same date, FRN applied for relief from sanctions to adduce new evidence to resist the enforcement of the Awards. On 29 January 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 4 September 2020, Sir Ross Cranston found that there was 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 adduce new evidence.
On 23 January 2023, the substantive application to set aside the Awards began before Mr Justice Robin Knowles in the Commercial Court. Oral closing arguments were concluded on 9 March 2023.
FRN's case and P&ID's defence.
FRN seeks to challenge the Awards on the following bases: (1) That the tribunal lacks substantive jurisdiction (under s. 67 of the Act); and (2) that the award has been obtained by fraud or the award or the way in which it was procured is contrary to public policy (under s. 68(2)(g) of the Act).
The challenge under Section 68(2)(g) of the Act
In addition to allegations of fraud, corruption, and lack of proper procurement procedures under Nigerian law, FRN argues that:
1. The GSPA was procured by bribes paid to insiders and top government officials in Nigeria as part of a larger scheme to defraud Nigeria;
2. P&ID’s main witness in the arbitration, Mr Quinn (one of the founders of P&ID and now deceased) gave perjured evidence to the tribunal and that, contrary to that evidence, P&ID was not in the position to perform the contract;
3. The jurisdiction and liability stages of the arbitration were tainted by the conduct of FRN’s advocate who made payments to top government officials and deliberately defended the case thinly such that the tribunal had no choice but to find for P&ID.
P&ID denies the allegations and states that monies paid to government officials had nothing to do with the GSPA. P&ID further argues that even if FRN’s allegations of bribery in relation to the GSPA were established, they cannot, as a matter of English law, result in enforcement being refused. In this regard, it relies on 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. In the latter case Burton J stated that “there is no English public policy requiring a court to refuse to enforce a contract procured by bribery”.
FRN contends that, in Honeywell and National Iranian Oil, the appellants had already had a proper opportunity, with knowledge of the relevant facts, to seek to avoid the contract in the arbitration. By contrast, FRN’s counsel made no allegations of bribery or wrongdoing against P&ID at the arbitration, and the tribunal made no findings on the issue.
The challenge under Section 67 of the Act
In respect of this aspect of the case, the separability principle is engaged and FRN needs to establish that the arbitration clause itself was procured by a specific fraud, targeted at that clause alone. It is not sufficient to allege that the GSPA was procured by bribery. This doctrine exists in the same form under Nigerian Law and English Law.
In this regard, FRN argues that P&ID bribed Ms Taiga (the legal adviser at the Ministry of Petroleum Resources at the relevant time) to ensure that the GSPA was agreed on favourable terms to P&ID, including a London arbitration clause. The inclusion of this clause set P&ID’s contract apart from every other contract concluded under the Project. FRN argues that Ms Taiga did not push back on its inclusion, despite it being contrary to government policy. For its part, P&ID argues, firstly, that there is no evidence at all that it bribed Ms Taiga to procure an English seated arbitration. Secondly, that FRN has advanced no evidence to prove the Nigerian government policy which it claimed the arbitration clause flouted. And finally, that the arbitration clause was approved by the Nigerian Minister of Petroleum Resources and the Attorney General's office at the relevant time.
Conclusion.
For context, the value of the damages claimed in the present dispute is equivalent to a third of Nigeria’s total annual budget for 2023 and five times its health budget. The outcome is therefore significant not only in respect of the legal arguments being presented but also due to the real terms financial impact on Nigeria and its people.
Whichever way the scale of justice tilts, the FRN v P&ID case will serve as a great lesson to parties, governments, and arbitrators in managing, prosecuting, and defending arbitration proceedings.
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