The decision of the London Commercial Court in the case of Process & Industrial Development (P&ID) v Federal Republic of Nigeria, coram Knowles J, handed down on October 2023, has garnered significant global attention within the legal and international business communities. Its consequences have questioned the seeming usefulness of arbitration as a dispute resolution mechanism casting a shadow on the potential corruption of arbitrators, deliberating the various perspectives surrounding this case.
The judgment has been welcomed by several distinguished arbitration practitioners (particularly from Nigeria) and even non-practitioners. Whilst the delight may be in order, sight must not be lost of the lessons to be learned from some key pronouncements (which may be obiter dictum) made by the court, which must necessarily generate a retrospection.
In the year 2010, P&ID executed a Gas Supply and Processing Agreement (GSPA) with Nigeria’s Ministry of Petroleum Resources. This agreement required Nigeria, via the Ministry of Petroleum Resources, to deliver natural gas (“wet gas”) to P&ID, which would process it into “lean gas” at no cost to Nigeria. The crux of the matter began to unfold when Nigeria failed to supply the wet gas in breach of its obligations under the GSPA and P&ID also, consequently, failed to perform its corresponding obligations.
In August 2012, P&ID initiated the arbitration process per the terms of the GSPA, claiming damages resulting from Nigeria’s alleged breach. The arbitration, conducted under the rules of the (then) Nigerian Arbitration and Conciliation Act, comprised Sir Anthony Evans, Chief Bayo Ojo, SAN, and Lord Hoffmann (as Chairman)-two highly respected English jurists and an Attorney General of Nigeria. It was held in Nigeria and adhered to Nigerian law.
The tribunal sat for over three years, and in January 2017, awarded P&ID damages proposed to be $6.597 billion, calculated based on the commercial expectation of P&ID, over the twenty-year lifespan of the GSPA. This figure, however, escalated considerably due to the application of the English pre-and post-judgment interest rates, thereby accruing to an immense sum of $9.6 billion by the summer of 2019.
In a move to enforce the terms of the arbitral award, the company sought to enforce the arbitration award in a London Commercial Court. This made Nigeria challenge the award on the grounds of fraud and corruption surrounding the contract’s creation and performance and the impartiality of the tribunal. In September 2019, the UK court granted Nigeria permission to appeal the award.
As far as the Nigerian government was concerned, the Tribunal’s decision was an ‘economic warfare’ that influenced foreign direct investment, and the international perception of doing business in Nigeria, and cast a shadow over the image of contractual fairness in Nigerian commercial sectors.
In confirming the initial award of $6.6 billion, followed by a later increment to an outstanding $10 billion in favor of P&ID, Justice Butcher placed Nigeria in a precarious financial situation. This seismic judgment sent shockwaves throughout the Nigerian state, already grappling with enormous economic challenges. This is due to its enormous financial implications accruing heavy interests per day and also questioning the sincerity and transparency of public officials in contract negotiations and enforcement.
In light of such overwhelming fiscal implications, Nigeria appealed the judgment. Justice Knowles of the English Commercial Court was charged with sitting over the appeal. In this case, Justice Knowles permitted Nigeria to extend the time to bring its challenge against the arbitral award. His decision was fundamentally based on the prima facie evidence presented concerning fraudulent and corrupt practices during the contract signing and execution, which implies that the contract should be nullified or reconsidered. This precedent-setting ruling necessitates a recalculation of how arbitration cases involving states and corporations are adjudicated in the international legal community.
To Nigeria, Justice Knowles’ ruling is a significant lifeline. Considering Nigeria’s current economic condition, amidst recovering from the 2020 global economic downturn and a dwindling oil market, a $10 billion payout would undoubtedly strain the nation’s budget vastly.
Simultaneously, Justice Knowles’ judgment carries multilayered implications for the international arbitration community. While serving as a sobering reminder to ensure strict adherence to ethical guidelines in contract negotiations, his ruling insinuates a possible shift in arbitration norms within the legal fraternity. The emphasis on fraud and corruption as key considerations in arbitral decisions could impact future arbitration rulings, sparking a pivoting focus on transparency and corporate governance; particularly now that Nigeria’s Arbitration and Mediation Act, has deleted the reference to misconduct, as a ground for setting aside an award.
However, the ruling also raises questions about the sanctity of arbitral awards and predictability in international arbitration. It prompts the query if award creditors can rely on arbitration awards, especially when there is a suspicion of fraud or corruption that was not initially uncovered during the process of arbitration. Moreover, it places an additional burden on arbitral tribunals to investigate and consider allegations of corruption during arbitrations.
In sum, Justice Knowles’ judgment is historic. Its repercussions ripple throughout the Nigerian state and beyond, fundamentally shaking the arbitration community with its new approach. While offering Nigeria an opportunity to contest an overwhelmingly high penalty, it also ushers in a meticulous debate on the nature of arbitration norms and the sanctity of arbitration awards.
Implications of the Judgment on Arbitration
The implications of the P&ID judgment significantly impact the global perception of arbitration. The severe allegations concerning the corruption of arbitrators potently taint the sanctity and credibility of the arbitration process. The significance of ensuring not just the fairness of the arbitration process but its clear perception of being fair, cannot be understated. This is not without reason- it needs to be borne in mind that arbitrators are typically granted considerable powers, facilitating them to essentially ‘write the law’ in significant points of the dispute. Further, the opacity of arbitration proceedings potentially enables and conceals corrupt practices, encouraging distrust and apprehension in the institutional process of arbitration.
The Justice Knowles’ judgment document is fast becoming a training document for many. It has also come with its learning outcomes many of which both the Nigerian State, Commercial lawyers, and the arbitration community must take a cue from. Some of them are as follows:
- Robust Due Diligence: Contracting parties must conduct thorough due diligence to assess the financial, legal, and technical capabilities of potential partners. This includes verifying the authenticity of documents and ensuring compliance with regulatory frameworks to minimize the risk of entering into agreements with unreliable or fraudulent entities. It is interesting to know that the promoters of P&ID have been doing business since the ’90s’ and no one profiled them against their acclaimed professional background.
- Anti-Corruption Measures: Governments and organizations should implement stringent anti-corruption policies and procedures to prevent corrupt practices in contract procurement. This involves promoting transparency, conducting regular audits, and enforcing penalties for violations.
- Strengthen Contractual Obligations: Parties involved in contracts should prioritize the clear and precise delineation of obligations, rights, and remedies. This includes incorporating mechanisms for dispute resolution, such as arbitration, to provide a fair and efficient means of resolving conflicts.
- Contract Management: Effective contract management is crucial to ensure compliance with contractual obligations, monitor performance, and address any potential breaches promptly. Establishing robust monitoring and reporting mechanisms can help identify and rectify issues before they escalate into costly disputes. Many of the infractions committed by the public servants were due to carelessness and weak contract management structures.
- Enforceability of Arbitration Awards: The P&ID case highlights the importance of recognizing and enforcing arbitration awards. Governments and parties to international contracts should respect the integrity and finality of arbitration decisions, as they play a vital role in resolving cross-border disputes and maintaining investor confidence.
Although bribery allegations featured prominently in Nigeria’s submissions on serious irregularity, the legal basis for Justice Knowles’ findings of serious irregularity was that of fraud, which is a different cause of action from that of bribery under English (or Nigerian) law. In this instance, the Court emphasized that “Section 68(2)(g) of the English Arbitration Act is concerned with the question of whether there was fraud and an award or conduct contrary to public policy’-the basis of the London Court’s conclusion. Either way, the case places a glaring spotlight on the potential corruption of arbitrators generally, pleading for increased transparency and probity in arbitration proceedings.
The judgment is also a direct challenge to the arbitration community to, as a matter of urgency, draw up an effective code of ethics of the practice of arbitration. This is the only way Users of the mechanism can continue to find it a credible one for resolving commercial disputes.
While the arbitration process aims to encourage faster and more effective dispute resolution, fostering a system that prioritizes ethical standards with zero tolerance for corruption is a quintessential prerequisite for its credibility.
PARTNER, PERCHSTONE & GRAEYS, LP
LL.B (IBADAN), B.L, LL.M (ABERDEEN), DOCTORAL CANDIDATE (DTU), VISITING PROFESSOR ON ALTERNATIVE DISPUTE RESOLUTION (ADR), CHAIRMAN, INTERNATIONAL LAW ASSOCIATION ARBITRATION COMMITTEE, MEMBER, INTERNATIONAL CHAMBER OF COMMERCE (ICC) COMMISSION ON ARBITRATION, PARIS.