The $9.98bn award: Nigeria dances on the precipice
Instead of fixing the P&ID case years ago, Nigeria is stumbling into a $10bn debt, and now accuses its own counsel of corruption. The results could be expensive.
An interesting scene in the ongoing enforcement of US$9.98 billion arbitral award against Nigeria played out before Sir Ross Cranston sitting as a Judge of the High Court of England and Wales on 13-14 July 2020.
Nigeria is seeking an extension of time to bring challenges under sections 67 and 68 of the Arbitration Act 1996 (“1996 Act”) to set aside an arbitration award in favor of Process and Industrial Developments Limited (P&ID) and a relief from sanctions.
By way of background
- In 2010, the Federal Republic of Nigeria (“FRN”) entered into a Gas Supply and Processing Agreement (“GSPA”) with P&ID. The GSPA was to run for twenty (20) years.
- In August 2012, P&ID alleged a breach of the FRN’s obligations under the GSPA and commenced arbitration at the London Court of International Arbitration against FRN claiming the sum of US$5.96 billion for the alleged breach.
- Both parties fully participated in the arbitral process and on 17 July 2015, the tribunal issued a liability award against FRN and on 31 January 2017, the final award was rendered. In its majority decision, the tribunal awarded the sum of US$6.6 billion as damages against FRN at interest rate of 7% from 20 March 2013 until full payment of the award. FRN tried unsuccessfully to set-aside both the liability and final awards in England.
- On 16 August 2019, Butcher J. granted P&ID permission to enforce the final award subject to a conditional stay of execution, giving FRN permission to appeal by Butcher J. on limited grounds. At the consequential hearing, FRN stated that an ongoing investigation may have uncovered fraud in the execution of the GSPA.
- On 5 December 2019, FRN filed applications pursuant to sections 67 and 68 of the 1996 Act as well as an application for extension of time and relief from sanctions. FRN also applied to have the extension and relief from sanctions applications addressed at the same time as its sections 67 and 68 applications hearing.
However, on 24 January 2020, Butcher J. dismissed the FRN’s application to have its applications for extension of times and relief from sanctions “rolled up” with the hearing on the merits of its sections 67 and 68 applications. Instead, the Tribunal directed that the extension and relief applications be heard as threshold issues.
Under the 1996 Act, an application to challenge an award must be made within 28 days of the date that the award is rendered (Section 70(3). The grounds for challenging arbitral awards in the English courts, include the tribunal’s lack of substantive jurisdiction to give the award (section 67), and a serious irregularity affecting the tribunal, proceedings or award (section 68).
Given that the liability award was rendered on 17 July 2015, while the final award was rendered on 31 January 2017, the 28 days statutory time-limit for challenging the award has elapsed, necessitating FRN’s applications for an extension of time to bring a challenge and a relief from sanction.
A cardinal consideration in an application to extend of time is the provision of section 73 of the Act. It provides that a party may not raise an objection later than the statutory time-limit unless it shows that at the time he took part in the proceedings, it “did not know and could not with reasonable diligence have discovered the grounds for objection”.
The basis of FRN’s applications is newly discovered evidence of fraud in the execution of the Gas Supply and Processing Agreement (GSPA) between FRN and P&ID as well as in the conduct of the arbitration. In support of FRN’s application are witness statements filed by the Attorney General of Nigeria, alleging that P&ID procured the GSPA by bribing key government officials who were involved in the award of the GSPA to P&ID.
FRN also claimed that its counsel colluded with P&ID and conducted himself egregiously in the arbitration by failing to challenge the evidence of P&ID’s witnesses, on which the Tribunal relied.
Generally, the threshold for establishing fraud is a high one and English courts require convincing evidence before setting aside an award for fraud.
A party alleging must show that some act of deceit perpetrated on the tribunal, such as relying on falsified documents before the tribunal or showing that the tribunal was party to the fraud (Russell on Arbitration (24th Ed.), 8-112. ). Similarly, a court might be persuaded by a showing that some form of “reprehensible” or “unconscionable” conduct has contributed in a significant way to the procurement of the award.
In addition, to be successful, the moving party must show a causal link between the fraud and the award and that the evidence of the fraud was not available and could not have been produced at the arbitration hearing.
Aware of these legal requirements, FRN’s counsel quite effectively emphasized the prevalence of corruption at the top levels of government in Nigeria. He stated, “Nigeria has a history of endemic corruption at the highest levels of government. The GSPA is unfortunately a recent example of this”
More effectively, FRN’s counsel, in excruciating detail, showed that Nigeria has uncovered evidence showing that P&ID paid a bribe to top officials of FRN’s Ministry of Petroleum Resources (“MPR”), days before and long after the signing of the GSPA.
These are weighty allegations and if successful, it might lead the English court to conclude that FRN should be granted the opportunity to set aside the final award. The only wrinkle is that FRN must show a causal link between the allegation regarding the fraud in the procurement of the GSPA by P&ID and the final award – this is an extremely difficult task.
This may have been the reason why, FRN’s counsel, relying on the witness statements of Nigeria’s Attorney General, placed a lot of emphasis on the conduct of FRN’s counsel at the liability stage of the arbitration.
In his skeleton argument, FRN argued that its counsel colluded with P&ID and as a result failed to challenge the evidence given by P&ID facts and expert witnesses.6 This is quite unconvincing as P&ID’s counsel pointed out.
It does appear that FRN’s counsel indeed put up a serious fight at the hearing to cross-examine P&ID witnesses but was denied, quite wrongly in my view, the opportunity to do so. Given that Nigerian law governed the arbitration, it appears the right to cross-examine a witness is a fundamental part of Nigerian law and not a procedural courtesy, which a tribunal may dispense with as it pleases.
It beggars belief why FRN did not highlight this part in its argument.
In addition, P&ID pointed out that:
- “The FRN fought hard in the arbitration and were successful in delaying the final resolution of the case for a number of years … the FRN’s defence generally, were inconsistent with a deliberate plan to lose the case. There was nothing sinister or improper about their approach – just the timeless problem of advocates dealt a poor hand making the best they could. Indeed, despite having started the arbitration in August 2012, the Final Award was not issued until nearly 4 ½ years later, on 31 January 2017. If (as the FRN contends) the arbitration was a vehicle for the fraud, it was one which the co-conspirators on both sides had agreed to drive forward very slowly”.
The steps taken by FRN’s counsel after the denial of the opportunity to cross-examine P&ID’s witnesses are inconsistent with FRN’s allegation of collusion, particularly, setting aside the award on liability in Nigeria.
Indeed, FRN’s counsel obtained an injunction from the Nigerian Federal High Court restraining the tribunal from proceedings with the arbitration but the order was ignored by the tribunal on the ground that the seat of arbitration is England and only English courts could issue such a restraining order.
More importantly, FRN was unconvincing in its attempt to establish that the payments made to top officials of the MPR and the Nigerian National Petroleum Corporation was to procure their collusion by P&ID, given that they gave evidence that was consistent with FRN’s case strategy.
FRN’s claim is further undermined by its exclusive focus on the liability stage, ignoring significant issues it should have addressed at damages stage of the arbitration proceedings.
Following the award on liability and in preparation for the damages phase of the proceedings, the law firm of Stephenson Harwood, FRN’s UK Solicitors advised FRN on the need to appoint damages expert for the damages phase of the proceedings and to conduct an investigation into P&ID. It appears this was not done and the significance of this failure is fundamentally the reason FRN found itself in this quagmire.
Commenting on the damages, Mr. Sandy Cowan of Grant Thornton, expert in quantum issues noted, “[i]n the absence of a meaningful challenge from the Respondent, the Tribunal agreed with the Claimant on key aspects of the measure and calculation of damages, including the 20-year period, the other underlying assumptions to project net income, and the discount rate”.
He further observed:
- “An award of USD6.6 billion is quite remarkable, both in absolute terms and by comparison with the Claimant’s investment of USD40 million. Despite the repudiation occurring at a very early stage of the contract, the Tribunal considered that there was no evidence that the Claimant would not have performed its obligations if it had been supplied with Wet Gas, so awarded full compensation over the full length of the contract. This shows the importance of a Respondent challenging facts, assumptions and calculations provided by a Claimant and providing alternative evidence to the Tribunal”.
FRN’s explanation that the hands of its counsel at that stage were tied sounds tenuous.
Among many things that could be said about this explanation, there is a significant difference between being liable for the sum of US$9.98 billion awarded against FRN by the majority and the sum of US$ 250 million, awarded by the dissenting arbitrator. It is reasonable to suggest that FRN would prefer that this entire case is about the latter and not the former sum.
In sum, the propensity of government officials of many African states, with the connivance of dubious foreigners, for fraud in contract procurement is well documented and commonplace.
Indeed, FRN’s counsel highlighted Nigeria’s history of endemic corruption at the highest levels of government and cited GSPA an example. Any strategy seeking to impugn the process of international arbitration is unlikely to be received with any credibility.
Both commercial arbitration process and actors often have very strong pushbacks to undermining attacks. In any event, English courts are known for their predilection to uphold arbitration process over illegally procured contracts.
FRN’s strategy of focusing exclusively on the liability stage, while ignoring its more significant failures at the damages stage, is quite risky and one that is likely to backfire spectacularly. Moreover, going after one’s counsel in a case without an earth-shaking evidence is most often a bad strategy because, by doing so, one waives attorney-client privilege, thus allowing such a counsel to use available information to defend himself.
It is about time that African parties such as FRN begin to address issues of public sector fraud in the procurement of dubious contracts instead of waiting until late in contract enforcement process to wage a losing battle against the arbitral process or its representation at the arbitral proceedings.