(Due) Process & Industrial Development?

The saga arising from the relationship between Process & Industrial Developments ("P&ID") and the Federal Republic of Nigeria has provided nearly a decade of dramatic twists for the watching global legal community and has redrawn the map when it comes to raising and addressing allegations of corruption in international dispute resolution. 

On 23 October 2023, Mr Justice Robin Knowles CBE, sitting in the Commercial Court in London, handed down a judgment which represents a dramatic and compelling further development in the case. Nigeria's challenge to the award has been upheld. Nigeria has welcomed the judgment as "a landmark victory", saying that it confirmed that "nation states will no longer be held hostage by economic conspiracies between private firms and solitarily corrupt officials who conspire to extort and indebt the very nations they swear to defend and protect." 

Facts

The detailed background to the case defies summary. Detailed accounts of the history can be found in the judgments of Knowles J and that of Sir Ross Cranston, in 2020.  Only the following facts are essential to note here: P&ID were granted by Nigeria a contract to build and operate a gas processing plant. It was not built, and the relationship with Nigeria broke down. In an arbitration seated in London, pursuant to the dispute resolution clause in the contract, in 2017, the tribunal found that P&ID was entitled to US$6.6 billion in damages, plus significant interest. Nigeria did not seek to defend the claim by relying on any allegations of corruption in relation to the granting of the contract to P&ID.

Nigeria did not take action to challenge the award immediately and the 28-day period for challenges came and went. But in 2019, Nigeria applied to challenge the award.

Nigeria's challenge involved several allegations of corruption and fraud, including the allegation that Nigeria's lawyer in the arbitration had agreed to receive payments in return for not properly conducting the arbitration, and had made corrupt payments. Sir Ross Cranston found that there was evidence that the contract with P&ID, and the arbitration award, had been procured through corruption and fraud. 

More detail about Sir Ross Cranston's judgment can be found in our article here.

Sir Ross allowed the matter to go to a full hearing, which took place earlier this year before Mr Justice Robin Knowles CBE. By the time of the hearing before Knowles J, Nigeria had gathered further evidence including by making applications to the courts of New York, Cayman, the BVI and Cyprus, seeking documentary disclosure.

The judgment of Knowles J is a startling examination of numerous allegations of bribery and corruption. A wide range of payments were identified, made to government officials and others, along with other dishonesty and misconduct.

The decision of Mr Justice Robin Knowles CBE

Knowles J found, in summary, that P&ID had made or arranged numerous payments to secure the grant of the contract. The Judge also found that P&ID's plans for the gas processing plant were no more than the incomplete and inadequate adaption of a previous planned project. P&ID had not properly secured the land for the new plant, and did not have the financial resources to deliver the project.

The Judge was not convinced that the fraud and corruption in the procurement of the contract deprived the Tribunal of jurisdiction, because he was not persuaded that the fraud or corruption attached separately and directly to the arbitration agreement rather than the contract as a whole. Therefore, the separate arbitration agreement survived the invalidity of the main contract.

However, the main contract had been procured by corruption and fraud, such that it would be against public policy to allow the arbitration award, relying on the contract, to stand.

Knowles J was also persuaded that the arbitration award should be set aside under section 68 of the Arbitration Act 1996, on the basis that the evidence on behalf of P&ID had been dishonest, and that the bribery of a Nigerian official had been continuing when the arbitration took place, to ensure that earlier corruption remained concealed from the Tribunal.

Crucially, Nigeria's investigations also revealed that P&ID's representatives in the arbitration had clandestinely received documents belonging to Nigeria, which were subject to legal privilege, and had retained and used those documents. That allowed P&ID an illegitimate advantage which it had procured through corrupt means. The Judge considered this to raise a legitimate allegation that the lawyers had behaved improperly. He referred them for consideration for disciplinary action by their professional regulators.

P&ID sought to argue that Nigeria should have been able to discover that P&ID's evidence was dishonest and should have raised that during the arbitration. Therefore, Nigeria should not be permitted to rely on those allegations to challenge the award. Knowles J found that this rule was not sufficient to save P&ID. In accordance with the decision of Lord Sumption in Takhar v Gracefield Developments Ltd [2020] AC 450, a party will be permitted to rely on a fraud, even by way of dishonest evidence given in an arbitration, if the fraud has been established by decisive new evidence which the party had not identified at the time of the arbitration, provided the challenging party had not made a deliberate decision not to investigate or rely on the material. P&ID had continued to bribe officials during the hearing, and had procured and used Nigeria's documents to assist it in advancing its dishonest claim. It could not complain that Nigeria should have identified and advanced its allegations at the time.

Discussion

In this case, Knowles J decided that a panel of very senior arbitrators (chaired by Lord Hoffmann) had been persuaded to enter an award for over $6 billion by a party which had been corrupt and dishonest throughout its relationship with Nigeria, and throughout the arbitration.

This stark reality undoubtedly raises legitimate questions about whether the arbitration process protects sufficiently against very serious abuse by a party (and, in a separate way, by its counsel).

On the government side, the Judge noted that the contract in question had been poorly drafted. A project of the magnitude of the gas supply and processing agreement should be subject to a detailed and comprehensive contract, rather than the outline-form document which regulated the parties' relationship. Naturally, it would also help if states were able to stamp out corruption amongst their officials.

As for the arbitration process itself, the Judge went on to note that the standard of representation of the Republic in the hearing was poor, and that this had left the Tribunal without very significant evidence and argument which should have been advanced. One example of that was that there was no document production process in the arbitration at all. 

However, the Judge also suggested that tribunals hearing very large cases, particularly against states, should be alert where they are faced with a party which is failing properly to challenge the case against it. There may be cases where 'red flags' indicate that there is an issue which requires investigation.

Finally, the Judge noted that the privacy of international arbitration proceedings can be legitimately questioned where the case involves a very large claim against a state. The judge wondered whether greater transparency of arbitration proceedings, with consequent exposure to the public gaze, might encourage higher standards, and discourage impropriety, in dispute resolution.

Many international arbitration practitioners will wonder whether Knowles J's concerns can be addressed without a radical change to the approach of tribunals. Generally accepted standards of due process will often preclude a tribunal from raising and pursuing arguments on behalf of a party. Except perhaps where one party is not represented by counsel at all (in which case the tribunal may be permitted or even required to interrogate the other party's case to some extent), the tribunal normally will be obliged to respect the way that each party wishes to advance its case. Tribunals also take a risk when they seek to probe into areas which neither party is relying upon. This can have unintended consequences, and can conflict with the way both parties have chosen, consciously, to put their cases. The tribunal cannot realistically hope to second-guess these decisions.

One possibility is for the combination of transparency, and a more inquisitorial approach, to be adopted by tribunals to reduce the scope for arbitrations to become further vehicles for (or victims of) the corruption which infects some contracts. Perhaps abuses could be reduced by holding large arbitrations involving states in public, and by encouraging tribunals taking a more active role in identifying the issues and the extent and sources of evidence. Toby Landau KC advocated the taking of a more inquisitorial approach by investment treaty arbitration tribunals in this year's Alexander Lecture at CIArb.

Another lesson to be learned from the P&ID arbitration is that disputes involving immense sums of public money call for the highest standards of representation and probity amongst the counsel acting on both sides. In this case, Nigeria's counsel failed to uphold the standards of practice which might have avoided the award in the first place (or at least the excessive size of it). Equally, P&ID's counsel appear (although this is not the place to express any judgment) to have allowed the size of the case and the desire for victory to lead to failures to respect normal professional conduct standards.  

This indicates that experienced international arbitration lawyers should support the education and development of government legal teams, particularly in developing nations. It also shows that huge, complex cases call for government lawyers to be supported by experienced and competent lawyers to help ensure that justice is served. Whilst we confess a self-interest in being engaged for such cases, we would suggest that where large claims are made, the cost of engaging specialist lawyers to assist the state might well be justified.

However the law and practice develop, there is no doubt that P&ID will always be regarded as a case which causes the international arbitration community to pause and take a good look at itself.