ENGLISH HIGH COURT GRANTS NIGERIA EXTENSION OF TIME TO CHALLENGE USD 6.6 BILLION AWARD FOR FRAUD

In The Federal Republic of Nigeria v. Process & Industrial Developments Limited [2020] EWHC 2379 (Comm), the English High Court (“Court”) granted the Federal Republic of Nigeria (“Nigeria”) an extension of time to bring challenges to an arbitral award of US$6.6 billion in damages and approximately US$4 billion in costs and interest (“Final Award” or “Award”) in favour of Process & Industrial Developments Limited (“P&ID”) under Sections 67 and 68(2)(g) of the English Arbitration Act 1996 (“Act”), nearly three years after the award was made.

The Court held that: (i) Nigeria had established a strong prima facie case that a gas processing agreement between Nigeria and P&ID (the “GSPA”), the arbitration clause in the GSPA, and the Final Award had been obtained through fraud; and (ii) Nigeria’s conduct in relation to investigating the fraud in the intervening period between the Final Award and the current proceedings had been reasonable.

The decision explores the factors guiding the Court’s discretion while considering an application for extension of time to challenge an award. The decision also demonstrates how the Court may weigh considerations of finality of an arbitral award and non-interference of courts against the general principles of fairness and public interest. While the judgment does not set aside the award in favour of P&ID, it allows Nigeria to argue the merits of its allegations of fraud before the Court.

Background

The GSPA provided for arbitration of disputes under the rules of the Nigerian Arbitration and Conciliation Act 2004, with London as the venue. London was also later held to be the seat of the arbitration. The GSPA was not implemented, and P&ID commenced an arbitration on 22 August 2012, which resulted in three awards in relation to jurisdiction, liability and quantum. The Final Award was made on 31 January 2017, ordering Nigeria to pay damages of US$6.6 billion and pre- and post-judgment interest.

Against the backdrop of the arbitration, the Economic and Financial Crimes Commission (“EFCC”)  conducted certain investigations into P&ID. The EFCC’s investigation commenced in February 2016, and recommended a further detailed inquiry into the circumstances surrounding the award of the contract and the key parties to the transaction. In June 2018, a further EFCC investigation was commenced into the GSPA and subsequent events, being the arbitration and the awards.

In August 2019, the English Court granted P&ID leave to enforce the Final Award. Shortly afterwards, further to proceedings in Nigeria, P&ID plead guilty to a conspiracy to defraud Nigeria, money laundering, tax evasion and trading without proper authorisations. In September 2019, the EFCC began interviewing public officials involved with the conclusion of the GSPA and thereafter received bank records which revealed payments by P&ID to Nigerian officials. Also in September 2019, Nigeria was granted permission to appeal the order for leave to enforce the Final Award.

In December 2019, Nigeria challenged the award under Sections 67 and 68(2)(g) of the Act, contending that the GSPA, the arbitration clause and the Final Award had been obtained through fraud. Since the application to challenge the award was made nearly three years after the Final Award and well beyond the 28-day time limit stipulated in Section 70(3) of the Act, the Court considered whether Nigeria should be permitted an extension of time to advance these challenges. Nigeria also sought relief from sanctions in relation to presentation of new evidence in response to P&ID’s enforcement application, beyond the stipulated deadline. It was agreed that this application would stand or fall with the application for extension of time to bring the challenge.

Key Issues

Prima facie case of fraud

Nigeria argued that it had established a prima facie case of fraud that justified an extension of time. In this respect, Nigeria’s application focused on three arguments: (i) P&ID had procured the GSPA by bribing Nigerian officials; (ii) perjured evidence had been given to the arbitral tribunal in relation to P&ID’s legitimacy as a business and its ability and willingness to perform the GSPA; and (iii) Nigeria’s counsel in the arbitration “deliberately defended the case thinly” including that he dishonestly failed to challenge the perjured evidence or to seek disclosure from P&ID such that the Tribunal had no choice but to find in its favour and the arbitration proceedings were tainted.

The Court found that Nigeria had a strong prima facie case that: (i) the GSPA was procured by bribery; and (ii) perjured evidence had been given which P&ID had relied on in the knowledge of its falsities.

The Court also found that Nigeria had a prima facie case that the jurisdiction and liability stages of the arbitration were tainted by the conduct of Nigeria's counsel, based on evidence of payments made by him to senior public servants who were connected to the arbitration, and which payments could have been to purchase their silence in respect of his conduct of the arbitration and settlement discussions.

Investigating the fraud and delay in bringing the proceedings

P&ID argued that Nigeria could not: (i) explain the “massive delay” in bringing the challenge proceedings; and (ii) discharge the burden of establishing that it did not know and could not with reasonable diligence have discovered the alleged fraud. In particular, it was argued that evidence that caused it to investigate after the judgment on enforcement was available not later than June 2016 before the Final Award.

In respect of the time before the Final Award was rendered on 31 January 2017, P&ID argued that Nigeria was precluded from raising an objection under Section 73 of the Act, since it had ignored recommendations from its legal representatives and officials to investigate the circumstances surrounding the GSPA and had therefore failed to exercise reasonable diligence to have discovered the fraud. However, the Court held that neither Nigeria nor its legal counsel could have been expected to discover that the GSPA had been procured by bribery and that P&ID was involved in a complex, fraudulent scheme, especially since the GSPA “had the cloak of legitimacy” in the form of approval from senior public servants.

The Court was not prepared to accept that reasonable diligence was lacking between the Final Award and the order enforcing the Final Award in August 2019. The Court rejected P&ID’s argument that Nigeria took a “deliberate decision” not to investigate the fraud and to pursue settlement, and concluded that “[t]he basic point is that there was no specific information such that Nigeria ought to have become aware of the building blocks of the fraud now alleged”.

P&ID contended that there was no explanation as to why, when P&ID had pleaded guilty to criminal counts in September 2019, Nigeria did not issue the proceedings until December 2019. However, the Court noted that in the English system, allegations of fraud could not be made lightly and accepted Nigeria’s argument that it needed to determine how the various elements of the alleged fraud came together.

Extension of time: application of the “Kalmneft” factors

Courts have discretion under Section 80(5) of the Act to extend the time limit of 28 days to challenge an award for serious irregularity, and have considered the factors laid down in AOOT Kalmneft v. Glencore [2001] 2 All ER (Comm) 577 to guide their discretion. The Court addressed a number of cases in which the Kalmneft factors had been applied.

On applying the relevant factors to the facts of the present case, the Court held:

• Length of the delay: P&ID had successfully concealed its fraud during the arbitration and for several years afterwards, which explained the great length of delay in bringing the challenge to the Final Award;
• Reasonableness of Nigeria’s conduct: Nigeria had acted reasonably as there was nothing it ought to have been aware of to act as a trigger causing a reasonable person, exercising reasonable diligence, to have discovered the alleged fraud;
• P&ID’s contribution to the delay, and prejudice resulting from the delay: Nigeria had established a strong prima facie case of fraud which P&ID had prima facie concealed, thereby contributing to the delay. There was no prejudice to it in being subject to a full inquiry into the fraud;
• Strength of the application: Nigeria had a strong prima facie case, and the Court noted that this is not the type of case where a party who has been unsuccessful in the arbitration alleges fraud when that was not properly investigated at the time of the arbitration; and
• Fairness “in the broadest sense”: The Court noted that, as well as the public policy goals of finality, non-intervention and adherence to time limits in the court’s approach to arbitration challenges, Section 1 of the Act refers to the fair resolution of disputes as a general principle, and party autonomy being subject only to necessary public interest safeguards. The Court also stated that there is no rule of law which automatically prioritises the finality of arbitral awards over the public policy of refusing to endorse illegal conduct. It accepted Nigeria’s submission that fairness has an impact in challenges, where there is a strong prima facie evidence of fraud, noting that: “Not only is the integrity of the arbitration system threatened, but that of the court as well, since to enforce an award in such circumstances would implicate it in the fraudulent scheme”.

Overall, and taking into account the above factors, the Court concluded that Nigeria would suffer a substantial injustice if it was deprived of the opportunity of making a challenge if the extension of time was refused.

Based on the above reasons, the Court granted Nigeria’s applications for extension of time and relief from sanctions.

Comment

Whilst the Court ultimately granted Nigeria’s application, the difficulties that an applicant would face in seeking an extension of time are clear from the judgment in this case. The Court not only drew attention to the Kalmneft factors but also to the fact that delay had to be judged against the “yardstick of the 28 days provided for in the Act” (citing Terna Bahrain Holding Company WLL v Bin Kamil Al Shamsi [2012] EWHC 3283 (Comm)) and the reasons for, and circumstances of, the delay had to be carefully scrutinised. The Court’s approach in this case could be regarded as balanced in the context of the elaborate fraud which Nigeria had been able to establish, on a prima facie basis, had been perpetrated against it. However, the prudent course for a party against whom an award is made remains, of course, to analyse it and bring any challenge within the time limits of the Act.

For more information, please contact Christian Leathley, Partner, Hannah Ambrose, Senior Associate, or your usual Herbert Smith Freehills contact.