English courts spark arbitration process debate in Nigeria v P&ID
In a landmark judgment the English Courts have overturned a USD 11 billion arbitration award against the government of Nigeria, a sum which was more than Nigeria’s most recent budget for its health, education and justice ministries combined. This was on the grounds of serious irregularity. The decision has been hailed as a victory against corruption. In his judgment, Mr Justice Knowles sought to provoke debate within the arbitration community regarding the arbitration process and whether it needs further attention, in particular where the value of the claim is so large and where a state is involved.
Over many years, oil companies burned off gas released during crude oil extraction, causing environmental and public health issues in the Niger Delta. In 2008 the Federal Republic of Nigeria (“Nigeria”) made the decision to discontinue this method and instead sought to capture and process the gas for electricity generation using gas powered plants.
Process & Industrial Developments Limited (“P&ID”) described itself as an engineering and project management firm. Its founders, Michael Quinn and Brendan Cahill, claimed a collective 60 years’ experience in project management in Nigeria. In reality, P&ID was a shell company registered in the British Virgin Islands, with no operational history.
The underlying dispute arose out of a 20-year Gas Supply and Processing Agreement (the “GSPA”) signed in 2010 between P&ID and Nigeria. Under the GSPA, Nigeria was to supply “wet gas” to gas processing facilities constructed by P&ID. P&ID was to convert the wet gas into lean gas and deliver the lean gas to Nigeria which would then be used for power generation. P&ID could keep the remaining natural gas liquids, which it could sell domestically or by export. It was accepted by the parties that in the first three years of the GSPA, neither party fulfilled its obligations.
P&ID filed an arbitration claim in 2012, arguing that Nigeria had repudiated the agreement by failing to supply adequate infrastructure and gas for the plant. An arbitral tribunal seated in London (chaired by Lord Hoffman, with Sir Anthony Evans KC appointed by P&ID and Nigeria’s former attorney-general, Chief Bayo Ojo, appointed by Nigeria) subsequently found in P&ID’s favour, in an award dated 17 July 2015. This stated that Nigeria had committed a repudiatory breach of the GSPA, that the GSPA was terminated by P&ID accepting that repudiatory breach, and that Nigeria was liable in damages. The Tribunal published a further award dated 31 January 2017 dealing with quantum. The Final Award required Nigeria to pay P&ID USD 6.6 billion, with interest awarded at the rate of 7% (amounting to USD 1 million a day), so that the amount due had increased to USD 11 billion by the date of the Court’s judgment.
Applications to the English Courts
On 16 March 2018, P&ID applied to the English Court for recognition of the USD 6.6 billion Award (the “Enforcement Recognition Application”). In response to the Enforcement Recognition Application, Nigeria applied to the English Commercial Court for an extension of time and relief from sanctions to rely on new evidence to challenge the Final Award (the “Extension Application”). The Enforcement Recognition Application was granted on 26 September 2019. However, a stay was ordered until determination of the Extension Application. The Extension Application was granted on 4 September 2020, approximately 5 years after the date of the Final Award. Sir Ross Cranton found that there was a strong prima facie case that the Final Award was procured by fraud and Nigeria would suffer substantial injustice if deprived of the opportunity to make a challenge should the application be refused.
Nigeria then applied to set aside the Final Award under s68 of the Arbitration Act 1996 (the “Act”), which allows the English Courts to overturn arbitration awards on the grounds of serious irregularity. Nigeria alleged that the awards were obtained by fraud or alternatively that the way in which they were procured was contrary to public policy.
Almost three years after securing the unprecedented extension of time to proceed with the substantive fraud challenge, and following an 8-week hearing in January 2023, the Court found that the Final Award had been procured by fraud because:
- P&ID had knowingly provided and relied upon false evidence before the Tribunal that was material to the case. For example, P&ID had bribed Nigeria’s in-house lawyer to procure the GSPA, this was withheld from the Tribunal in P&ID’s evidence.
- P&ID continued to bribe Nigeria’s in-house lawyer through a series of payments to ensure her silence throughout the arbitral proceedings.
- P&ID received over 40 of Nigeria’s internal legal documents including documents that were privileged. However, they failed to alert Nigeria to the privileged documents in their possession during the arbitral proceedings.
Mr Justice Knowles has referred matters to the SRA and the BSB as a result of this and had “no hesitation” in finding that there had been a substantial injustice, as each issue amounted to a serious irregularity within the meaning of the Act. In addition, Nigeria’s right to confidential access to legal advice was compromised.
Applying Takhar v Gracefield Developments Ltd  UKSC 13, the Court noted that s73(1) of the Act prevents a party that participated in arbitral proceedings from raising an objection regarding an irregularity affecting the tribunal or the proceedings unless, at the time of their participation, they did not know and could not with reasonable diligence have discovered the grounds for the objection. The Court found that Nigeria could not, with reasonable diligence, have discovered the grounds for objection, namely because Nigeria only first became aware of the bribery of Nigeria’s in-house lawyer in September 2019.
In light of the high-profile judgment, and anticipating its impact on the arbitration community, Mr Justice Knowles stated, “I hope the facts and circumstances of this case may provoke debate and reflection among the arbitration community, and also among state users of arbitration… The facts and circumstances of this case, which are remarkable but very real, provide an opportunity to consider whether the arbitration process… needs further attention where the value involved is so large and where a state is involved.” With that, Mr Justice Knowles set out four points of debate and reflection:
- Drafting major commercial contracts involving a state - even in the absence of bribery and corruption, imbalances frequently arise between states and commercial parties where experience, expertise and resources may be grossly unequal. This case underlines the importance of professional standards and ethics in the work of contract drafting, including in the approach to other parties to the proposed contract. It is why some contributions of pro bono work by leading law firms to support some states challenged for resources is so valuable.
- Disclosure or discovery of documents - disclosure or discovery of documents enabled Nigeria to obtain access to the truth. In all the recent debates about where disclosure or discovery matters, this case is a strong example of disclosure or discovery playing an important role in the litigation process.
- Proper participation and representation in arbitrations over major disputes involving a state - legal representatives in the arbitration did not do their work to the requisite standard, experts failed to perform their duties, and politicians and civil servants failed to ensure that Nigeria as a state participated properly. This meant that the Tribunal did not have the requisite assistance it needed. Even without the fraudulent and dishonest behaviour of P&ID, Nigeria was compromised. This raised a question for debate; should a tribunal be more interventionist and ensure relevant points are put to experts and that particular legal issues are explored fully when dealing with long term contracts involving a state?
- Confidentiality in significant arbitrations involving a state – a key benefit that draws parties to arbitration is its confidentiality. However, the privacy of arbitration can hinder public scrutiny which can, in turn, reduce the accountability of not only the parties, but also the tribunal. Greater visibility in arbitrations involving a state or state-owned entities may be part of the answer.
The stakes were considerable in this important case and while the English Courts are renowned for their pro-arbitration stance and do not lightly find serious irregularity, the fact pattern in this case left the Court with no option. As a result of the extensive range of very serious abusive conduct, the case fell squarely within the circumstances where awards cannot be permitted to stand.
It is clear that proactiveness and foresight on the part of the tribunal remain critical to mitigate the risk of fraud and uphold the public perception of the viability of alternative dispute resolution globally. This judgment is set to have a significant impact on the landscape of arbitrations involving a state and serves to highlight the robust safeguards provided by the Act. It is an important reminder that the English Courts will not be afraid to intervene in arbitrations where there has been serious irregularity in order to ensure the parties have access to justice.