It does not happen often that an arbitral award is successfully challenged in England for serious irregularity under section 68 of the Arbitration Act 1996.
This happens even less often when an award is rendered by a tribunal as prominent as the one in Process and Industrial Developments Ltd v Nigeria, which included Lord Hoffmann (former UKSC judge) as Chairman, Sir Anthony Evans (former EWCA judge), and Chief Bayo Ojo SAN (former Attorney General of Nigeria).
It is outright extraordinary for a judgment to conclude by urging reform of international commercial arbitration and noting that a copy of the judgment will be referred to the Bar Standards Board and the Solicitors Regulation Authority to consider the professional consequences of the conduct of two lawyers involved in an arbitration.
And yet Knowles J did all of this in his judgment of 23 October 2023 in Nigeria v P&ID.
In 2010, the parties entered into a gas supply and processing contract that provided for arbitration in London. Under the contract, Nigeria was to supply gas to processing facilities constructed and operated by P&ID, a BVI company. The stated duration of the contract was 20 years. Neither party performed its obligations, and a dispute arose. A tribunal was constituted. It ruled in favour of P&ID, and ordered Nigeria to pay USD6.6b. Interest was awarded at a rate of 7%, eventually ballooning to USD11b. Nigeria argued that the contract and the arbitration were compromised due to corruption, bribery, and fraud. Knowles J describes the surrounding circumstances in great detail in his judgment that spans 595 paragraphs or 140 pages with annexed materials. Jonathan Bonnitcha provides a useful summary of the facts in his post of 23 March 2021, reporting on a 2020 High Court judgment in this case (footnotes omitted):
“the contract was based on an unsolicited proposal presented to the Nigerian government by P&ID. No tender was conducted. Moreover, P&ID did not appear to have the experience in the gas sector that would be expected of a company responsible for a multibillion-dollar project—it was an offshore entity with ‘no assets, only a handful of employees, and was without a website or other presence.’
… the arbitration was conducted in private. Indeed, even the fact that the arbitration was taking place did not become public knowledge until 2015, following a change of government in Nigeria, at which point in time the jurisdictional and merits phases of the arbitration had already concluded. Despite a number of ‘red flags’ of corruption relating to the contract, Nigeria did not directly raise the issue of corruption in its defence of the arbitration. (Nigeria’s lawyers in the arbitration did obliquely describe the Minister of Petroleum Resources at the time the contract was signed ‘as having been a “friendly” Minister who purported to commit the Government to obligations and concessions which exceeded his powers.’) Based on documents that are publicly available, it seems that the tribunal also did not take any steps to determine whether the contract might have been procured through corruption.
Given the many billions of dollars at stake, the way the arbitration unfolded was also unusual. Nigeria’s lawyers failed to file expert evidence on jurisdictional issues of Nigerian law, or insist on an oral hearing on jurisdiction where P&ID’s evidence might have been tested through cross-examination. At the merits phase, Nigeria failed to challenge the key claims contained in the statement of P&ID’s central witness, its chairman, Michael Quinn. It put forward only one ineffectual witness of its own who did ‘not claim to have first-hand knowledge of any of the relevant events.’ The tribunal did hold a hearing on the merits, but it lasted only a few hours. The tribunal concluded that Nigeria had repudiated the contract.
The tribunal’s decision on quantum was based on a single witness statement from the investor. It did not order the production of documents that might have proved (or disproved) these self-serving claims… the investor had not commenced construction of the gas facility and estimated its own expenditure in relation to the project at around USD 40 million. (In the subsequent British court proceedings, the investor conceded that this expenditure had not been incurred by P&ID at all but, rather, by another company owned by a former Nigerian general.)”
Knowles J made three key findings. First, P&ID provided to the tribunal and relied on Mr Quinn’s false evidence. Mr Quinn omitted to mention that the legal director at the Ministry of Petroleum Resources had been paid a USD5,000 bribe before the conclusion of the contract and a USD5,000 bribe after (). Second, P&ID continued to pay bribes, in the total amount of USD4,900, to this official “to keep her ‘on-side’, and to buy her silence about the earlier bribery” (). Third, P&ID improperly retained Nigeria’s privileged internal legal documents that it had received during the arbitration (). The two lawyers, whose conduct in relation to these documents Knowles J referred to the Bar Standards Board and the Solicitors Regulation Authority, were set to receive payments of USD850m and USD3b, respectively, if P&ID had been successful. Relying on these facts, Knowles J found that there were serious irregularities of the kind set out in section 68(2)(g) of the 1996 Act (“the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy”), which caused Nigeria substantial injustice.
This case concerned a dispute arising out of a gas development project, typically a matter within the purview of international investment arbitration tribunals. However, it was argued based on a breach of contract, falling under the jurisdiction of an international commercial arbitration tribunal. These two forms of arbitration differ significantly in several aspects, most notably for the purposes of the present discussion in terms of transparency, non-party participation, and the ability and willingness of tribunals to consider wider social, economic, and political circumstances (I am not implying here that international investment tribunals take public interest consideration sufficiently seriously, only that they tend to be more open to such considerations). The inadequacy of international commercial arbitration for cases of public interest was laid bare in P&ID v Nigeria. The public only became aware of the arbitration after a change of government. The tribunal did not examine, of its own motion, whether corruption, bribery, and fraud tainted the contract and the arbitration. There was no assessment of whether wider social, economic, and political circumstances justified the finding of liability and exceptionally high damages. And two lawyers involved in the case were to make fabulous fortunes if the claimant won against a country where corruption is endemic and public officials can apparently be bribed for a few thousand dollars.
This is why Knowles J made important comments urging reform of international commercial arbitration in cases of public interest. His words are worth reproducing in full:
“582. … 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 responsibility to supervise or oversee arbitration. The facts and circumstances of this case, which are remarkable but very real, provide an opportunity to consider whether the arbitration process, which is of outstanding importance and value in the world, needs further attention where the value involved is so large and where a state is involved.
583. The risk is that arbitration as a process becomes less reliable, less able to find difficult but important new legal ground, and more vulnerable to fraud. The present case shows that having (as here) a tribunal of the greatest experience and expertise is not enough. Without reflection, then a case such as the present could happen again, and not reach the court.
584. With diffidence and respect, I draw attention to 4 points, which are to some degree interconnected.
(1) Drafting major commercial contracts involving a state
585. It was a complete imbalance in the contributions of the parties that enabled the GSPA [the contract] to be in the form it was. Many reading this judgment will recognise that, although in the present case bribery and corruption were behind that imbalance, it happens in other cases without bribery and corruption but simply where experience, expertise or resources are grossly unequal. This underlines the importance of professional standards and ethics in the work of contract drafting, including in the approach to other parties to the proposed contract. It is why some contributions of pro bono work by leading law firms to support some states challenged for resources…is so valuable, in the interests of their, often vulnerable, people…
(2) Disclosure or discovery of documents
586. It has been disclosure or discovery of documents that has enabled the truth to be reached in this case… In all the recent debates about where disclosure or discovery matters, this case stands a strong example for the answer that it does.
(3) Participation and representation in arbitrations over major disputes involving a state
587. Notwithstanding Nigeria’s allegations, I have not found Nigeria’s lawyers in the Arbitration to be corrupt. But the case has shown examples where legal representatives did not do their work to the standard needed, where experts failed to do their work, and where politicians and civil servants failed to ensure that Nigeria as a state participated properly in the Arbitration. The result was that the Tribunal did not have the assistance that it was entitled to expect, and which makes the arbitration process work. And Nigeria did not in the event properly consider, select and attempt admittedly difficult legal and factual arguments that the circumstances likely required. Even without the dishonest behaviour of P&ID, Nigeria was compromised.
588. But what is an arbitral tribunal to do? The Tribunal in the present case allowed time where it felt it could and applied pressure where it felt it should. Perhaps some encouragement to better engagement can be seen as well. Yet there was not a fair fight. And the Tribunal took a very traditional approach. But was the Tribunal stuck with what parties did or did not appear to bring forward? Could and should the Tribunal have been more direct and interventionist…? Should the Tribunal have taken the initiative to encourage exploration of new bounds of contract law and the law of damages that may today be required where major long term contracts are involved?
(4) Confidentiality in significant arbitrations involving a state
589. The privacy of arbitration meant that there was no public or press scrutiny of what was going on and what was not being done. When courts are concerned it is often said that the ‘open court principle’ helps keep judges up to the mark. But it also allows scrutiny of the process as a whole, and what the lawyers and other professionals are doing, and (where a state is involved) what the state is doing to address a dispute on behalf of its people. An open process allows the chance for the public and press to call out what is not right.
591. … 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?”
These are important questions. It is a shame that the Law Commission of England and Wales does not deal with them in its recent final report on the review of the Arbitration Act 1996.