In The Federal Republic of Nigeria v Process & Industrial Developments Limited [2023] EWHC 2638 (Comm), Mr Justice Knowles in the Commercial Court considered a challenge to two arbitral awards. Not only is this a very rare example of a successful challenge to an award under Section 68 of the Arbitration Act 1996 ("the Arbitration Act"), but it contains excoriating commentary on the conduct of the arbitration. Here we look at a decision which the judge hoped would "provoke debate and reflection among the arbitration community".
The history of the case
A dispute arose between the Federal Republic of Nigeria ("Nigeria") and Process & Industrial Developments Limited ("P&ID") as to performance of their obligations under a (Nigerian law) contract titled "Gas Supply and Processing Agreement for Accelerated Gas Development" ("the GSPA"), which had a duration of 20 years or more. P&ID's allegations included a claim that Nigeria failed to provide gas, so frustrating the GSPA, and claimed damages from Nigeria. The dispute was submitted to arbitration with a Tribunal appointed in 2013. The Tribunal determined the seat of the arbitration to be London.
The Tribunal published an award on liability in 2015 and a final award dealing with quantum in 2017 ("the Awards"). The Tribunal, deciding in P&ID's favour, found that Nigeria had committed a repudiatory breach of the GSPA and that the GSPA had been terminated when P&ID accepted Nigeria's repudiatory breach. Nigeria was also found to be liable to P&ID for damages. Those damages were set at USD 6.6 billion plus interest at 7%.
Nigeria challenged the Awards, along with an earlier award on jurisdiction, in the Commercial Court in London. Nigeria raised allegations of bribery, corruption and perjury in relation to the GSPA and in relation to the arbitral process.
In addition, Nigeria claimed that it would have been entitled to avoid the GSPA under Nigerian law, or at least terminate it going forward, as it said the agreement had been procured by bribes made by P&ID to Nigerian officials.
Had Nigeria lost its challenge, the sum it would have been liable to pay P&ID with interest would have exceeded USD 11 billion.
The challenge
Nigeria's challenge to the Awards was made on the grounds of a "serious irregularity" for the purposes of Section 68(2) of the Arbitration Act. Specifically, Nigeria relied on Section 68(2)(g), alleging that the Awards had been procured by fraud and were contrary to public policy.
The judgment
Mr Justice Knowles found there were three things that caused the Awards to fall within a Section 68(2) "irregularity", each of which amounted to a fraud in the way in which the Awards were procured. The Awards, or the way in which they were procured, were therefore contrary to public policy.
Individually the matters giving rise to the irregularity or fraud were found to be as follows:
- False evidence – During the arbitral process, P&ID provided and relied on evidence that was material but which it knew to be false. This was evidence in relation to how the GSPA came into existence but which omitted to mention bribes paid to Nigerian officials which may have helped to bring the GSPA about.
- Corruption – Further, additional bribes were made by P&ID during the arbitral process.
- Breach of confidentiality – During the course of the arbitration, P&ID, unknown to Nigeria, received internal legal documents of Nigeria's in relation to the arbitration itself that were confidential and some of which were subject to legal professional privilege.
The Tribunal was not aware of any of these facts and each, the judge found, amounted to a fraud by which the Awards were obtained and thus were contrary to public policy. The judge found that the fact and concealment of the bribes alone would have altered the Tribunal's approach, leading him to conclude that Nigeria suffered substantial injustice within the meaning of Section 68. Similarly, P&ID obtaining Nigeria's internal legal documents would have altered the Tribunal's approach had it known of P&ID's conduct. This conduct, the judge said, compromised Nigeria's right to access confidential legal advice – which he described as "an important part of the process of arbitration".
Three points for discussion
Mr Justice Knowles concluded by inviting the arbitral community to consider the arbitral process in circ*mstances such as those of this case, where even "a tribunal of the greatest experience and expertise" was not enough to ensure a reliable decision.
He then highlighted three points which may, indeed, merit thought and debate in the arbitration community.
- Disclosure or discovery of documents – Disclosure or discovery of documents can be crucial and it was this process that enabled the truth to be reached in this case. However, in arbitration, disclosure may be more limited that it is in litigation before some state courts.
- Tribunal interventionism – The judge questioned whether an arbitral tribunal should intervene if it becomes clear that a party's legal team is not getting instructions or fails to raise points at a hearing. In this case, Mr Justice Knowles was clearly concerned by the approach taken by Nigeria during the arbitration phases.
- Confidentiality in arbitrations involving state actors – Lastly, the judge referred to the recurring issue of the privacy of arbitration and the lack of public scrutiny during the process. He queried whether greater visibility and scrutiny should be available in significant arbitrations involving a state or state-owned entities, where a material percentage of the state's GDP or budget is at stake.
The parties are still to present argument with regard to the final orders to be made by the Court. Even after that, it may not be the end of this high profile and high value dispute.
In the meantime and whatever may follow, those three points raised by Mr Justice Knowles leave the arbitral community with food for thought in considering best practice in current and future proceedings.
To discuss any of the points raised in this article, contact Gordon Bell or Mary Lindsay.
