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Nigeria’s Gas Case Lights Up the Arbitration World

It has ingredients of a thriller: big money, greed, bribery, deception, picturesque locations… But the main theme of the story is how it has forced a rethink about arbitration in resolving international contractual disputes.

In October 2023 in England’s High Court, Mr Justice Robin Knowles set aside an award of $11-billion made by a tribunal against Nigeria’s government and in favour of a British Virgin Islands-based company called Process & Industrial Developments (P&ID).

The $11-billion award was almost a third of Nigeria’s national budget for 2023 and would have come close to bankrupting the West African country.

Justice Knowles found the original contract between Nigeria and P&ID, relating to a failed natural gas project, was obtained through fraud – as was the later tribunal award. He asked English professional legal bodies to investigate the “indefensible” conduct of their members who’d acted for P&ID and its two Irish directors.

The weightiest parts of the judgment concerned the arbitration process itself, comments leading South African legal journalist Carmel Rickard.

Notably, the judge suggested that if the tribunal stage was not private, and open to scrutiny by media and the public, there would be a clearer picture of what all parties were up to – including what a government was doing in the name of its people, adds Rickard.

The judge was also concerned about the narrow focus of the tribunal, which only concerned itself with what was put before it.

Justice Knowles’s words sent shockwaves through global legal circles engaged in arbitration.

“International arbitration is widely used throughout Africa as a means of dispute resolution in major commercial disputes, which very often involve government entities. The importance of the judgment was recognised by the judge in his discussion of the issues, namely:

  • The ‘complete imbalance’ in the contributions of the parties that enabled the form of the original agreement and the fact that, in this case, bribery and corruption lay behind that imbalance;
  • The importance of professional standards and ethics in the work of contract drafting;
  • The important role that disclosure of documents plays in international arbitration;
  • The need for quality representation in arbitrations involving a state;
  • The consequences of privacy, which meant there was no proper scrutiny of what was going on and what was not being done.”

Leading actors in this drama are the men behind P&ID, “two Irish individuals with meaningful experience and apparent savvy in how to do business in Africa”, pointedly notes a blog of legal publisher Wolters Kluwer.

The Irishmen were presented with an opportunity “connected with Nigerian political ambitions to develop Nigeria’s gas resources,” adds the blog.

A deal was signed in 2010 for P&ID to run a natural gas processing plant, but the Nigerian government subsequently failed to build a pipeline to supply it.

The company alleged a breach of contract. In 2017, arbitrators in London made a $6.6-billion (plus interest) judgment against Nigeria for what P&ID claimed it lost on the project – though it had never actually built a gas plant.

The Financial Times reported that the award was one of the largest publicly known sums granted against a country.

A new government in Nigeria, elected on a mandate of economic reform, found itself in a precarious situation – in danger of having its foreign assets seized to meet payment of what had grown to $11-billion. It appealed in the UK High Court – jurisdiction of the original arbitration agreement.

Justice Knowles’s judgment in this appeal not only saved Nigeria’s economy from collapse, it shook up the arbitration establishment.

He ruled that the award couldn’t stand as the contract was obtained via means “contrary to public policy”. The case involved people on all sides driven “by greed and prepared to use corruption; giving no thought to what their enrichment would mean in terms of harm for others” – the “others” including Nigeria’s people.

“What happened in this case is very serious indeed,” said the judge. Arbitration had been a “shell that got nowhere near the truth”.

Des Williams explains that use of a “foreign” country (the UK is this case) as a location for arbitration is common.

One of the perceived advantages of international arbitration is that it can be seated in a neutral jurisdiction.”

Justice Knowles was generally positive about the role of arbitration – despite the calamitous initial outcome in this case.

“Yes, arbitration is a good option and is much used by African countries,” notes Williams.

“The major issue is that most international companies are not prepared to do business in Africa if the only forum available to them for resolution of disputes is a national court of the country in question. In international arbitration, the major advantage is seen to be the impartiality, independence and neutrality of the arbitration tribunal, together with the fact that any award ultimately obtained will generally be enforceable under the New York Convention, to which many countries are signatories.”

Williams believes there are learnings from the P&ID case for the African Continental Free Trade Area (AfCFTA) Disputes Protocol, which is relies on arbitration and mediation principles.

“The issues raised by the judge require further attention in the African context,” says Williams. “Of particular importance is the judge’s concern about the consequences of privacy in arbitration, which meant no public or press scrutiny of what was going on and what was not being done.

“Interestingly, this is an issue which has been addressed in the South African International Arbitration Act of 2017, which provides for arbitration to which a public body is a party to be held in public, unless, for compelling reasons, the arbitral tribunal directs otherwise.

“One of the advantages of arbitration is the privacy and confidentiality of arbitration proceedings. However, there is a strong view that where governments and public bodies are involved, proceedings should be transparent.”

Chairperson of LEX Africa, Pieter Steyn, concludes “the establishment of credible and active African arbitration centres (for example in Egypt, Kenya, Mauritius, Nigeria, Rwanda and South Africa) is significant particularly where the parties to the dispute are African.  The P&ID arbitration and litigation took place in London and the Nigerian government must have incurred enormous legal costs.  The use of an African (as opposed to a non-African) arbitration centre or venue can be more cost and time effective for the parties to the dispute.   It is accordingly important that parties carefully consider and take advice on the most appropriate arbitration venue and governing law for their contracts.”

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