English High Court sets aside USD 11bn arbitral award against Nigeria on grounds of serious irregularity
Browse this blog post
The multibillion-dollar award
The dispute arose out of a 20-year Gas Supply and Processing Agreement (GSPA) signed in 2010 between Process & Industrial Developments Limited (P&ID) and the Federal Republic of Nigeria (Nigeria). The GSPA required Nigeria to supply wet gas to P&ID. In turn, P&ID was to construct and operate a processing plant for that gas. However, when Nigeria could not perform its end of the agreement, P&ID claimed 20 years’ worth of lost profits by way of arbitration.
In 2015, the arbitral tribunal held that Nigeria had repudiated the agreement. Through a further award in 2017, the tribunal ordered Nigeria to pay P&ID USD 6.6bn in damages, a sum material to Nigeria’s entire federal budget. With interest at the rate awarded by the tribunal (7 per cent per annum), the award increased to USD 11bn by the date of the Court’s judgment.
The s.68 challenge
Out of time?
In 2019, the High Court converted the awards into a judgment. Nigeria then made an application to set aside the awards under s.68 of the Arbitration Act 1996 (the Act), which allows the court to intervene in arbitration proceedings on the grounds of a serious irregularity affecting the tribunal, the proceedings or the award. Nigeria alleged that the awards were obtained by fraud or alternatively that the way in which they were procured was contrary to public policy (pursuant to s.68(2)(g)).
Although the 28-day time limit for bringing such a challenge had expired in 2017, in 2020 the High Court had allowed an extension of time. It found Nigeria had a prima facie case of fraud in support of its challenge and would have suffered a substantial injustice if deprived of the opportunity to make a challenge should an extension of time be refused.
Court finds arbitration awards were obtained by fraud and were contrary to public policy
Following an 8-week hearing in January 2023, the court found that the awards had in fact been procured by fraud and bribery because:
- First, P&ID had knowingly provided and relied upon false evidence before the tribunal that was material to the case. Such false evidence included the fact that, while P&ID had bribed a Nigerian official to procure the GSPA, this was withheld from the tribunal in P&ID’s evidence as to how the agreement came about.
- Second, P&ID continued to pay that official to ensure her silence throughout the arbitration.
- Third, P&ID received over 40 of Nigeria’s internal legal documents. P&ID and the two key lawyers then acting for it knew that the documents were privileged. Yet, they failed to alert Nigeria of this or return the documents. Instead, they opted to monitor whether Nigeria had become aware of the fact that the tribunal and Nigeria were being deceived.
Each issue amounted to a serious irregularity within the meaning of s.68(2)(g) of the Act. Moreover, the court had “no hesitation” in finding that there had been a substantial injustice. If the tribunal had been aware of the bribery and concealment, the arbitration would have been very different. In addition, Nigeria’s right to confidential access to legal advice was compromised.
Nigeria had not forfeited its right to object
S.73(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, even where the allegation of irregularity stemmed from fraud, the requirement of “reasonable diligence” imposed by s.73(1) is applicable.
The High Court went on to find that Nigeria could not with reasonable diligence have discovered the grounds for the objection. First, the court dismissed the contention that endemic corruption in Nigeria was enough to suggest corruption in every case. Second, it had only acquired knowledge of the bribery in September 2019, when the bribed individual gave a statement to the Nigerian Economic and Financial Crimes Commission. Third, it was not until late October 2021 that Nigeria discovered P&ID had retained Nigeria’s internal legal documents, when P&ID’s new lawyers for the s.68 challenge discovered this and alerted Nigeria.
The wider implications for arbitration
The court found that, although the arbitral tribunal “did what it did with what it had”, in truth the arbitration was a “shell that got nowhere near the truth”.
In light of the injustice Nigeria almost suffered, the court offered four reflections in the hope that the arbitration community would consider whether the arbitration process needs revision, particularly where the value of the award is so large and where a state is involved. These were:
- 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. That is why professional standards and the ethics of the drafters, including in their approach to each other, are so important. As such, pro bono contributions by leading law firms are vital.
- Disclosure or discovery of documents – There are opposing views as to whether disclosure or discovery matters. However, in this case, disclosure orders made by the English and foreign courts enabled Nigeria to access to the truth.
- Proper participation and representation in arbitrations over major disputes involving a state – Even in the absence of bribery and corruption, Nigeria had been let down by failings at all levels of those representing it. Legal representatives 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 in the arbitration. In such circumstances, 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 – The privacy of arbitration can hinder public scrutiny of what is going on and what is not being done. In turn, this may reduce the accountability required to keep judges up to the mark. It may also prevent the public and press from calling out what is not right where what is at stake is public money amounting to a material percentage of a state’s GDP or budget. Might greater visibility in arbitrations involving a state or state-owned entities be part of the answer?
The English courts are widely recognised for their pro-arbitration stance. That stance was confirmed by the Law Commission when it recommended only limited changes to the Act in its recent reform proposals. This case is a reminder that the courts’ usual deference to the awards of arbitral tribunals is not without limits.
For example, arbitral tribunals must act with independence and impartiality. However, in situations where a party’s chosen legal counsel do not adequately represent them, or a party does not fully participate in proceedings, the court’s comments underline that arbitral tribunals may need to probe the opposing party’s case further.
At the same time, the case serves as an important reminder of the robust yet flexible framework of the Act. A balance which must be struck between protecting the finality of an arbitral award and maintaining the integrity of the arbitral process. As this case shows, the Act can do just that where circumstances warrant.
Judgment: Nigeria v P&ID