UPDATE: THE WINNER LOSES IT ALL? ENGLISH COURT UPHOLDS NIGERIA'S CHALLENGE TO $11bn AWARDS IN 140 PAGE MEGA-JUDGMENT

Observing that "the facts and circumstances of this case... are remarkable" and that he did not do so "without reluctance" Knowles J upholds challenge to tribunal's awards but leaves their ultimate fate open.

In the latest decision in a decade long case that has already seen Nigeria granted an "unprecedented" extension of almost three years to bring a challenge to awards in a London-seated arbitration (see our previous post), the Commercial Court has upheld (in part) Nigeria's challenge under s68 of the Arbitration Act (the 1996 Act) to awards given in favour of Process and Industrial Developments Ltd (PI&D). The Court found that the awards were obtained by fraud and the awards were, and the way in which they were procured was, contrary to public policy. Despite finding in Nigeria's favour, Knowles J did not address in the judgment how the awards should be dealt with, deciding that he would hear arguments from the parties on this point at a later date.

Background

As discussed in more detail in our earlier blog post, in 2010, the Nigerian Ministry of Petroleum Resources entered into a twenty-year Gas Supply and Processing Agreement with P&ID (the GSPA). Under the GSPA, Nigeria was to supply P&ID with wet gas and P&ID was to construct and operate a processing facility for the gas supplied by Nigeria. P&ID was to retain the remaining gas liquids for onward sale. After the GSPA was not implemented, P&ID commenced arbitration proceedings against Nigeria in August 2012, alleging that Nigeria had repudiated the contract. The tribunal found in P&ID's favour, issuing its final award in January 2017 and awarding P&ID US$6.6bn damages for lost profits and interest of over $4bn and running at 7 per cent (now totalling US$11bn). Having been granted an extension of time to challenge the awards, Nigeria brought its challenge under s68(2)(g) of the 1996 Act, on the basis that "the award[s] [had been] obtained by fraud or the award or the way in which was procured being contrary to public policy".

Amongst other things, Nigeria alleged that P&ID had bribed a Nigerian public official in order to obtain approval of the GSPA and bribed that same public official to keep the bribery quiet during the arbitration. It also alleged that P&ID illegally accessed privileged documents from the lawyers representing the Nigerian government and used those documents to further its own position during the arbitration.

The s68 challenge

Procedural irregularity

S68 of the 1996 Act allows for a challenge to an arbitral award on grounds of serious procedural irregularity. Knowles J found that there were serious irregularities under s68(2)(g) (the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy) and that "each amounted to fraud by which the Awards were obtained, and by reason of them the Awards or the way in which the Awards were procured was contrary to public policy". These were:

1. Providing witness evidence to the Tribunal that was false and known to be false: Knowles J found that P&ID had provided witness evidence in the arbitration which purported to "explain how the GSPA came about” but which did not mention the bribery payments made to the Nigerian public official in December 2009 and March 2010;
2. Ongoing bribery of the same official during the arbitration: The Court found that P&ID continued to bribe or make corrupt payments to the same public official during the arbitration in 2015-2016 "to suppress from the Tribunal and Nigeria the fact that she had been bribed when the GSPA came about";
3. Improper retention of privileged documents received during the arbitration: Knowles J found that there had been a "flow of over 40" such documents to P&ID between the commencement of the arbitration through to the final award. These documents had been retained (rather than returned unread) to monitor Nigeria's position throughout the arbitration, including whether or not Nigeria was aware of P&ID's deception.

Substantial injustice

The Court recognised that the findings of fraud and conduct contrary to public policy were serious irregularities. On the question of whether they had or will cause substantial injustice to Nigeria, relying on the Privy Council decision in RAV Bahamas (see our post on that decision here), Knowles J emphasised that "there will be substantial injustice where… had the irregularity not occurred, the outcome of the arbitration might well have been different".

Knowles J had "no hesitation" in concluding that Nigeria had suffered substantial injustice on the first two irregularities alone. He considered that the Nigeria would have been in a far more favourable position in the arbitration had the facts of the bribery been before the Tribunal. He also found that the Tribunal would have had a different approach to P&ID's witness evidence if the concealment of the bribery had been known.

Regarding the third irregularity, Knowles J observed that Nigeria's right to confidential access to legal advice was "utterly compromised throughout all or most of the Arbitration" concluding, again, that had it known of P&ID's actions the Tribunal's approach to the case would have been very different. Noting that s68(2)(g) is concerned "not only [with] whether the award was obtained by fraud but whether the way in which the award was procured was contrary to public policy", Knowles J also found that the public policy ground was satisfied on the basis that "Nigeria was comprehensively deprived of its right to legal professional privilege throughout the process".

S73: No loss of right to object

After finding the requirements of s68 were, in principle, satisfied, Knowles J proceeded to consider whether Nigeria had nonetheless lost the right to object under s73.

S73 states that “[i]f a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making…any objection… that there has been any other irregularity affecting the tribunal or the proceedings…[they] may not raise that objection later…unless [they] show that, at the time [they] took part or continued to take part in the proceedings, [they] did not know and could not with reasonable diligence have discovered the grounds for the objection” (emphasis added).

Knowles J acknowledged Nigeria bore the burden of showing that it had not lost the right to object.  Having considered the evidence before him, he concluded that Nigeria did not know and could not with reasonable diligence have discovered the grounds for its objections while it took part in the arbitration.

Knowles J drew a distinction between cases on the one hand where "the possibility of dishonest evidence should be in the mind of a party who asserts a case which is… flatly inconsistent with the evidence of an opposing party's witness" and the "quite different" cases on the other hand, "where the opposing party's witness is further concealing bribery", as was the case here. In the latter case, discovery was reliant on something happening to cause the concealment to become apparent. While P&ID sought to rely on a number of "red flags" and arguments as to what "reasonable diligence" was required of Nigeria, the Court was ultimately unpersuaded. Knowles J stressed that reasonable diligence did not require Nigeria to look for bribery. Knowles J looked carefully at when Nigeria might first have begun to acquire knowledge of each ground of challenge, concluding that Nigeria had not lost the right to object.

Comment

This is a strongly worded and highly critical judgment in which Knowles J comments on the "remarkable" underlying facts, and also the "greed" of some of those involved in the arbitration. He considers the actions of P&ID to be "the most severe abuses of the arbitral process" and praises the "expertise and tenacity" of the legal team representing Nigeria. While noting that arbitration "is of outstanding importance and value in the world", Knowles J also asks members of the arbitration community to reflect on how to ensure that the arbitral process has the correct safeguards in place "where the value is so large and a state is involved" to prevent similar circumstances arising again.

Given the factual findings in this case, it is unsurprising that it resulted in a rare successful s68 challenge. As noted in our previous post, s68 imposes a high hurdle for parties seeking to challenge an arbitral award. However, citing the Departmental Advisory Committee on Arbitration Report on the Arbitration Bill 1996, the Court found this case to be "a stand-out example of a case where “justice calls out for” correction" recognising that "“what has happened is so far removed from what could reasonably be expected of the arbitral process that” it is to be expected that the court will take action".

While in this instance Nigeria was able to satisfy the Court that it had not lost the right to object under s73 and was under no obligation to assume the presence of bribery, parties who consider that there may be grounds for challenging an award should investigate and raise such grounds promptly and diligently, or risk being precluded from challenging the award at a later stage.

For more information, please contact Hannah Ambrose, Partner, Vanessa Naish, Professional Support Consultant, or your usual HSF contact.

Update 14 December 2023: We understand that at a hearing on Friday 8 December 2023 Knowles J decided to set aside the awards rather than remit them to the tribunal for reconsideration. Knowles J previously deferred his decision on the awards' fate in order to hear further argument from the parties on what should happen to the awards in the event that he upheld Nigeria's challenge. We also understand that at the 8 December hearing, the judge reserved his decision on whether to allow P&ID permission to appeal his October judgment upholding Nigeria's challenge to the awards, but permitted an appeal application brought by one of P&ID's lawyers against the findings that the judge had made against him. We shall post a further update on these developments once the judgment has been published.

Update 8 January 2024: On 21 December 2023 Knowles J handed down a further judgment providing his reasons for setting aside the Awards in his 23 October 2023 judgment (the "October Judgment") rather than remitting them to the tribunal. He also addressed P&ID's application for permission to appeal the October Judgment in which Nigeria's challenge to the award was upheld.

Knowles J observed that "[i]t is a major thing for a challenge under section 68(2)(g) of the Arbitration Act to succeed and for arbitration awards to be set aside". He endorsed the comments in Merkin and Flannery on the Arbitration Act 1996 that setting aside, rather than remitting, was appropriate where there was "no real prospect of justice being done by the tribunal upon reconsideration", which would be the case where “the irregularity really goes to the root of the award”.  The judge decided that this was such a case, remarking that "on any view [the case was] one of the most serious" due to P&ID's conduct. Knowles J ultimately reached the conclusion that "[t]hings have gone so far and so deep that that [he was] satisfied that it would be inappropriate to remit the matters in question to the Tribunal for reconsideration" and that "[i]t is clear now that the Awards should not have come into existence" and should, accordingly, be set aside.

P&ID applied for permission to appeal on three main grounds, together with five allegedly "other compelling reasons why an appeal should be heard". The Judge considered each in turn, concluding that "P&ID has no real prospect of success on the grounds of appeal proposed to be raised" and that none of the other reasons given justified permission to appeal.

The authors would like to thank Luke Hard for his contribution towards this post