Nigeria v PI&D: Nigeria’s USD11 billion fraudulent arbitration awards
On 23 October 2023, the King’s Bench Division of the Commercial Court handed down the judgment in the case between the Federal Republic of Nigeria and Process & Industrial Developments Limited (P&ID). The Judgment highlights that clients and tribunals should be alive to the possibility of fraud within arbitration proceedings and the Judgment may lead to a more proactive approach from tribunals in this context in future.1
Key Takeaways
The Judgment should provide comfort that the courts are alert to the risks of bribery, fraud and corruption in the arbitral process and are willing to take steps to remedy a party’s previous wrongdoings. That the Judgment came several years after the underlying award had been issued, also demonstrates that time is not a bar to recourse for those who have been the victims of fraud in arbitral proceedings.
However, the discovery of fraud and corruption may not always be as clear cut as in this case and Nigeria v P&ID offers no guarantee of the reversal of an arbitral decision where the other party or tribunal members were blind to the presence of such activities. The case also highlights how public policy arguments relating to fraud can delay or prevent the enforcement of an arbitral award.
Background
The Judgment relates to a Gas Supply and Processing Agreement for Accelerated Gas Development (GSPA) entered into by Nigeria and P&ID in 2010. The signing of the GSPA followed the announcement of the 2007 Nigerian Gas Master Plan which, was introduced to enable Nigeria to realise its full potential in the gas sector.
Under the GSPA, Nigeria was to supply “wet” gas to gas processing facilities constructed by P&ID. P&ID was then responsible for turning the wet gas into “lean gas”, to be used for power generation throughout Nigeria. However, in the event, neither party performed their obligations under the GSPA, i.e. Nigeria did not supply the wet gas and P&ID did not construct any facilities.
Three years after the GSPA was executed, P&ID commenced arbitration proceedings against Nigeria, on the basis that Nigeria had not provided the materials promised for commencement of the project. In 2015 the Tribunal held that:
- Nigeria had committed a repudiatory breach of the GSPA;
- The GSPA was terminated by P&ID accepting the breach; and
- Nigeria was liable in damages in the amount of USD6.6 billion, plus interest at 7% (the Award).
Nigeria challenged the Award in the English High Court in 2019 on the basis of alleged bribery and corruption by P&ID. Nigeria claimed both that the GSPA signed between Nigeria and P&ID was a consequence of corruption, and that Nigeria’s own lawyers in the arbitration were bribed.
Although the accusation the Nigeria’s lawyers were bribed was not upheld, on the basis of insufficient evidence, Knowles J found that (i) P&ID’s legal team had improperly obtained and retained privileged documents; (ii) P&ID relied on evidence which they knew to be false; and (iii) P&ID had bribed a Nigerian official to buy her silence in the arbitration proceedings in relation to the bribes she had accepted when the GSPA was entered into.
The High Court subsequently refused to enforce the Award, stating that as a result of the fraud “the Arbitration was a shell that got nowhere near the truth”. As such, the Award was not enforced due to it being contrary to public policy.
Why is it significant?
Importantly, the Court highlighted that the corruption involved in procuring the contract alone was not sufficient to warrant the award to be set aside under Section 68 of the English Arbitration Act 1996, rather it was the process in which the Award was obtained (by fraud) which justified its non-enforcement.
Although the Court did not make any findings in relation to Nigeria’s representation, it did note several failings by Nigeria’s legal representatives during the proceedings. This will create questions for those involved in arbitrations as to the role of tribunals where one party is poorly represented; and to what extent a tribunal should intervene. Guidance from arbitral institutions may be necessary to assist tribunals as a result. As the court acknowledged in its judgment, “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, and among other courts with the responsibility to supervise or oversee arbitration”.
The judgment also highlights the often-raised concern that the confidential nature of arbitration and the lack of public scrutiny of awards puts the process at risk of corruption. Here, despite a Tribunal of “the greatest experience and expertise”, the fraud / bribery went undetected in the original arbitration.
Being aware of the risks
Those involved in the oil and gas industry are likely aware of the potential for bribery in large scale projects, particularly those in jurisdictions where corruption is more commonplace. Arbitration is often the forum of choice for oil and gas disputes, particularly for the purposes of international enforcement.
In such circumstances, the importance of selecting a robust seat of arbitration (with judges who are empowered to act and will exercise their powers appropriately), and appropriate applicable rules, is vital. The powers of the English Court to compel disclosure from P&ID and its lawyers were crucial in uncovering the fraud, and so parties entering into arbitration agreements in the context of complex and long-term projects should think carefully about their seat selection and seek advice from their lawyers at an early stage if there are any concerns as to potential corruption or bribery.
1[2023] EWHC 2638 (Comm)
