The English High Court sets aside multibillion-dollar arbitral award against the Republic of Nigeria

By Ben Smith, Senior Associate, and Tajwinder Atwal, Trainee

Introduction

In The Federal Republic of Nigeria v Process & Industrial Developments Limited [2023] EWHC 2638 (Comm),1 the High Court upheld a challenge to arbitral awards that had been obtained by fraud. While the facts of the case were highly unusual, the judgment demonstrates the high standard that challenges under section 68 of the Arbitration Act 1996 must meet in order to succeed.

Section 68 and “serious irregularity” – a reminder 

Section 68 of the Arbitration Act 1996 (the “Act”) allows challenges to awards on the ground of serious irregularity which has caused, or will cause, substantial injustice to the claimant. Under section 68(2)(g), an application may be upheld where an award is obtained by fraud or an award, or the way in which it is procured, is contrary to public policy.

The facts

In January 2010, a 20-year Gas Supply and Processing Agreement for Accelerated Gas Development (the “GSPA”) was signed by the Federal Government of Nigeria (“Nigeria”) and Process & Industrial Developments (“P&ID”), a company registered in the British Virgin Islands. Under the terms of the GPSA, Nigeria was to build gas pipelines and supply specified quantities of “wet” gas to P&ID while P&ID agreed to construct the gas processing facilities to process the “wet” gas into “lean” gas and deliver it to Nigeria so it could be used for power generation. The GPSA was governed by Nigerian law and provided for arbitration seated in London.

However, by 2012, neither Nigeria nor P&ID had performed their obligations. The parties sought to renegotiate the GSPA, but P&ID subsequently alleged that Nigeria had repudiated the GSPA and claimed damages in an arbitration.

The tribunal issued awards on jurisdiction, liability and quantum. The final award, dealing with quantum, was issued on 31 January 2017 and ordered Nigeria to pay P&ID US$6.6 billion in damages, which, at the time, was material to Nigeria’s federal budget, plus 7% interest. 

What happened next?

In February 2016, Nigeria used its Economic and Financial Crimes Commission to investigate P&ID and undertook an investigation into the GSPA in 2018. 

The investigations led Nigeria to allege that P&ID had committed a fraud by procuring the GSPA through bribery and, significantly, in its conduct of the arbitration. In light of these allegations, on 5 December 2019, Nigeria applied to the High Court for an extension of time to bring challenges against the awards under 68(2)(g) of the Act. 

The High Court found that Nigeria had established a strong prima facie case of fraud affecting both the GSPA and the arbitral proceedings. This meant that, if Nigeria was deprived of the opportunity to challenge the awards, Nigeria would suffer a substantial injustice and it would be contrary to public policy. Therefore, despite the 28-day statutory time limit having expired in 2017, the court granted an unprecedented extension of time for the challenge.

The decision

In his judgment, Knowles J considered whether, for the purposes of section 68(2)(g):

• the awards were obtained by fraud or if the way in which they were procured was contrary to public policy; and
• substantial injustice had been or would be caused to Nigeria.

Knowles J identified three matters regarding P&ID's conduct in the arbitration amounting to a serious irregularity within section 68(2)(g) of the Act as follows:

1. Knowingly providing false evidence: P&ID provided to the tribunal and relied on evidence that was material that P&ID knew to be false. Knowles J specially referred to the witness statement of Michael Quinn, P&ID’s founder. In his witness statement which purported to “explain how the GSPA came about”, Mr Quinn did not mention that P&ID had made numerous payments to a former legal director at the Ministry of Petroleum Resources (“GT”) who negotiated the GSPA on behalf of Nigeria.

2. Bribery: Knowles J found that P&ID had continued to pay bribes to GT during the arbitration. Knowles J found that the corrupt payments were made by P&ID to keep GT "on-side", to "buy her silence about the earlier bribery".2

3. Retention of Nigeria's internal legal documents: P&ID had been provided with, and retained improperly, Nigeria's internal legal documents during the course of the arbitration. Among the 40 or so legal documents that P&ID had obtained were internal letters or reports outlining Nigeria's consideration of the merits, strategy and settlement. Rather than returning the documents immediately, P&ID took the benefit of the information to monitor Nigeria's strategy and its awareness of the deception. 

Unsurprisingly, Knowles J had "no hesitation" in finding that each of the above matters caused substantial injustice to Nigeria; the outcome in the arbitration would have been different and favourable to Nigeria had the truth been available to the tribunal during the proceedings.

Nigeria was also required to demonstrate that it could not, with reasonable due diligence, have discovered the grounds it relied on for its section 68(2)(g) challenge sooner and, therefore, raised the objections at an earlier point.

Knowles J found that Nigeria first began to acquire knowledge of the bribery of GT when she was interviewed by the Nigerian authorities in September 2019. Further, Nigeria first began to acquire knowledge that P&ID had obtained the internal legal documents only on 29 October 2021. 

Commentary

While the facts of this case are remarkable, it provides a very real opportunity to consider whether the arbitration process needs further attention particularly where the sums claimed are significant and where states are involved. Knowles J, himself, drew attention to four particular points: 

1. Drafting major commercial contracts involving a state: the imbalance between the parties enabled the GSPA to be in the form it was, although bribery and corruption allowed this imbalance. Knowles J noted that this happens in other cases without bribery and corruption but simply where experience or resources are grossly unequal. 

2. Disclosure or discovery of documents: this case is a significant example of the value of a robust disclosure/discovery process, as it is this that enabled the truth to be reached in this case. 

3. Participation and representation in arbitrations over major disputes involving a state: Nigeria was compromised, because legal representatives did not do their work to the standard needed, experts failed, and politicians and civil servants failed to ensure that Nigeria, as a state, participated properly in the arbitration. As a result, this meant the tribunal did not have the assistance it was entitled to in order to make the arbitration process work. 

4. Confidentiality in significant arbitrations involving a state: In the oral closing argument, Lord Wolfson KC, leading counsel for P&ID, stated: “section 68 is not there to give a remedy if you instruct an honest lawyer who makes a mess of it or doesn’t take an available point. That is just tough. You have made your arbitration bed and you lie in it”. Knowles J agreed this was correct; however, commented that “unless accompanied by public visibility or greater scrutiny by arbitrators, how suitable is the process in a case such as this where what is at stake is public money amounting to a material percentage of a state’s GDP or budget? Is greater visibility in arbitrations involving a state or state-owned entities part of the answer”.3

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• 1. https://www.judiciary.uk/wp-content/uploads/2023/10/Nigeria-v-PID-judgment.pdf [3]
• 2. Paragraph 495 of the judgment.
• 3. Paragraph 591 of the judgment.