The Federal Republic of Nigeria v P&ID – Renewed scrutiny of IA

Introduction

On 23 October 2023, the English Commercial Court published its much-anticipated judgment in The Federal Republic of Nigeria v Process & Industrial Developments Limited [2023] EWHC 2638 (Comm). The Court found in favour of the Federal Republic of Nigeria (“Nigeria”), holding that arbitral awards obtained by Process & Industrial Developments Limited (“P&ID”) against Nigeria were procured through fraud and in a manner contrary to public policy and should be set aside pursuant to section 68 of the Arbitration Act 1996. While the judgment contains lengthy analysis of the impact of fraud and corruption on s68 challenges, the judge also made a number of broader remarks regarding the integrity of arbitration as a dispute resolution mechanism. In this article, we focus on the latter issue.

Summary

The underlying dispute arose out of a Gas Supply and Processing Agreement for Accelerated Gas Development (“GSPA”) concluded between Nigeria and P&ID. Under the terms of the contract, Nigeria was to provide “wet” gas to gas-processing facilities constructed by P&ID, who would process the gas into “lean” gas, which would in turn be delivered to Nigeria for power generation.

The GSPA contained an arbitration clause with London as the seat of arbitration. In 2012, P&ID filed for arbitration asserting failure by Nigeria to meet its obligation under the GSPA and claiming lost profits. In July 2015, the tribunal found that Nigeria had repudiated the contract by not supplying wet gas. In the final award, dated January 2017 (the “Award”), Nigeria was ordered to pay USD 6.6 billion, reflecting the anticipated profits lost by P&ID over a 20-year period (as discounted for present value). Including accrued interest, the value of the Award at the time of the Court’s judgement was around USD 11 billion. Initial attempts in 2016 by Nigeria to set aside the award on liability failed for lack of evidence. Following successful actions for discovery against P&ID in various courts internationally, Nigeria relaunched its challenge to the Award in 2020, culminating in a final hearing in January 2023.

Nigeria presented a broad range of allegations that numerous civil servants, its internal legal team at the relevant ministry, and even its own counsel in the arbitration proceedings were corrupted by P&ID. It presented substantial evidence from disclosure documenting what were said to be payments and communications evidencing corruption in relation to the entry into the GSPA. P&ID’s defence was broad and technical but hinged primarily on the premise that, regardless of the corruption alleged by Nigeria, the main reason Nigeria lost the arbitration was the refusal/failure of the relevant government ministries to properly participate in the arbitration and the incompetence of its counsel—which could not constitute grounds to set aside the Award.

While the Court found that it was unable to make findings of corruption (due to lack of evidence) in many of the respects alleged by Nigeria, it was satisfied that P&ID paid bribes to Ms Grace Taiga, a former legal director at the Ministry of Petroleum Resources and lawyer involved in the drafting and negotiation of the GSPA on behalf of Nigeria. The Court observed that P&ID tendered witness evidence in the arbitration which concealed the fact that P&ID had secured the GSPA contract through bribes paid to Ms Taiga. Further, P&ID continued to make payments to Ms Taiga during the arbitration proceedings to buy her ongoing silence. Separately, P&ID was found to have improperly retained and misused Nigeria’s privileged and confidential legal documents. It was held that P&ID utilised its access to Nigeria’s privileged legal advice to assess whether its corruption of Ms Taiga had been uncovered by Nigeria.

Accordingly, the Court concluded that there was a serious irregularity under s68(g) of the Arbitration Act and the Award should therefore be set aside. The Court also gave consideration to whether the loss of right to object under s73 applied, but concluded that, in the circumstances, it did not.

Impact for Arbitration

The fact that such substantial corruption and fraud went seemingly unchecked in a private arbitration will only heighten the concerns and debates around transparency and reliability of the arbitral process, considering that the judgment describes the conduct of one party as “practicing the most severe abuses of the arbitral process”. Accordingly, the judge in the case, Mr Justice Knowles, sets out a number of points of reflection on the case as part of his judgment, which are considered below.

Transparency

This case provokes consideration of whether arbitrations involving a state (or a state-owned entity) ought to have more transparency and visibility. While commercial parties often choose arbitration due to the perceived benefits of confidentiality, such privacy in this case means that there is “no public or press scrutiny of what was going on and what was not being done”. In the present case, the public stake for Nigeria was very high, amounting to a material percentage of its annual federal budget.

The past decade has seen the growth of transparency in investor state arbitration (at ICSID and UNCITRAL Rules on Transparency), which recognises the importance of accountability and public oversight in cases which are of fundamental public interest, as will typically be the case when states are parties to high value contracts. While it is unlikely that similar transparency measures can be implemented as a matter of national arbitration laws in commercial arbitration, states could encourage the incorporation of transparency provisions and protocols in their arbitration agreements. Further, the development of specific procedural rules to cater to the needs of states when participating in commercial arbitrations, which could be adopted by arbitral tribunals (with the consent of all parties), would be beneficial. There remains a further question as to whether such measures should become the default when states are parties and subject only to explicit opt-outs. In any event, such measures are unlikely to have any great effect in circumstances where agreements are procured by bad actors or by corruption.

Arbitral Interventionism

Should arbitral Tribunals be more “direct and interventionist” where legal representatives have failed to perform to the standard required of them? In this case, Nigeria’s position was “compromised” as its legal counsel failed to consider and put forward the necessary legal and factual arguments. The failings of its counsel, arguably arising from a lack of instructions from the Nigerian government, meant that Nigeria did not properly participate in the arbitration.

As practitioners of international arbitration will be familiar, the legal background of the members of an arbitral Tribunal, in conjunction with the law of the seat and the governing law of the underlying contract, will all have an impact on the role played by the Tribunal. However, it is unsurprising that a Tribunal seated in England and chaired by a former Court of Appeal judge would allow proceedings to be conducted in a highly adversarial manner with limited intervention from the Tribunal. Indeed, it seems unlikely that an English Court would have applied an any more interventionist approach in similar circumstances.

Disclosure in International Arbitration

Mr Justice Knowles highlighted the significance of document disclosure in this case. Crucial information relating to the bribery and corruption was obtained as part of discovery orders made internationally and by the English Court in 2020, without which the truth would likely never have been uncovered.

While document production (as it is referred to in arbitration) remains a key phase of most arbitration proceedings, in practice, the powers of an arbitral Tribunal to compel the production of documents are somewhat limited. This could be addressed by increasing the powers of arbitrators to sanction parties which do not comply with orders for production and to encourage closer cooperation with national courts to obtain appropriate orders.

Balance of Power

Further, it was noted that there was a “complete imbalance” in the contributions to the drafting of the GSPA. While in the present case, the imbalance was caused by bribery and corruption, a large difference in experience and resources between the two parties can also lead to such imbalance. Therefore, upholding professional standards and ethics in contract drafting is paramount to protecting both parties to an agreement. Increasing the sophistication of the internal legal teams at state ministries, as well as bolstering their budgets for external counsel, will be essential to improving the balance of power between parties both at the contracting phase and in any resulting disputes.

Without the consent of the parties, little can be done to address the concerns raised in this judgment without upending the system of international arbitration, as supported by quick and near-automatic global enforcement under the 1958 New York Convention for the Recognition and Enforcement of Arbitral Awards. The uniform application of that convention, and increasingly harmonised national arbitration rules, are what has made arbitration a popular choice for dispute resolution. However, there can be little doubt that this recent judgment (and any future consideration in appeals) is likely to lead to much soul searching in the arbitration community.