Case Update: The Federal Republic of Nigeria v Process & Industrial Developments Limited

At a Glance

• The case demonstrates that even where there is a highly experienced arbitral tribunal, court intervention can still be required in high-value, complex cases and the process can still be vulnerable to serious and sustained corruption in certain circumstances.
• The arbitration process is important to dispute resolution, but it may need revising for high value cases, and where a state is party to the proceedings

The High Court has recently handed down its judgment in the case of The Federal Republic of Nigeria v Process & Industrial Developments Limited [2023] EWHC 2638 (Comm). The case concerned the Federal Republic of Nigeria's application under section 68 of the Arbitration Act 1996 challenging an arbitration award (Award) that was reached following a dispute between the parties. The Award was overturned on the grounds that it was obtained by fraud. The case demonstrates that even where there is a highly experienced arbitral tribunal, court intervention can still be required in high-value, complex cases and the process can still be vulnerable to serious and sustained corruption in certain circumstances.

Background

In 2010, the Federal Republic of Nigeria (Nigeria) and Process & Industrial Developments Limited (P&ID) signed a contract that provided for the generation of gas (Contract). Under the Contract, Nigeria agreed to supply gas to the processing facilities that would be constructed by P&ID. In turn, P&ID would use these facilities to process the gas so that it could be used by Nigeria for power generation. However, Nigeria failed to supply any gas and P&ID failed to construct the processing facilities. As a result, in 2012, P&ID commenced arbitration against Nigeria. In 2015, the arbitral tribunal found that Nigeria had committed a repudiatory breach of the Contract and they were therefore liable for the resulting damages. In 2017, quantum of the award was set at US$11 billion, inclusive of interest, which was the equivalent of a significant proportion of the Nigerian state budget at the time.

Challenging the award

Nigeria challenged the Award under section 68 of the Arbitration Act 1996 on the grounds that there was a serious irregularity in how the Award was obtained. Nigeria argued that bribery and corruption had taken place, and even alleged that two of its own lead counsel had been corrupted by P&ID.

There were three grounds on which Sir Robin Knowles CBE found in favour of Nigeria and dismissed the Award under section 68. Firstly, P&ID provided and relied on evidence before the arbitral tribunal, in the form of witness statements, that they knew to be false. Secondly, P&ID paid numerous bribes to Mrs Grace Taiga — who was the Legal Director at the Ministry of Petroleum Resources and had previously worked at the Nigerian Ministry of Defence — in order to secure the initial Contract and, later, to suppress this information from the tribunal. Finally, P&ID had access to Nigeria's internal legal documents during the arbitral process that were covered by legal professional privilege and detailed Nigeria's legal strategy. P&ID's legal team retained the documents and failed to notify Nigeria that they had access to them. Knowles J included highly critical remarks about the conduct of the lawyers involved in this retention of documents, describing their actions as “indefensible” and stating that their behaviour was guided by the likelihood that they would receive significant sums of money in the event of P&ID's success.

Impact of the decision

As additional commentary to the judgment, Knowles J expressed concern about the suitability of arbitration as a dispute resolution process in situations like this. Whilst acknowledging that the case was unusual, Knowles J noted that although a challenge of an arbitration award can be possible, it is by no means likely, and Nigeria had to utilise significant resources to succeed on the challenge. The arbitration process is important to dispute resolution, but it may need revising for high value cases, and where a state is party to the proceedings. Knowles J highlighted that even with an arbitral tribunal of significant expertise and experience — as in this case — it may not always be enough to fairly evaluate all the issues and the arbitration process may “become less reliable, less able to find difficult but important new legal ground, and more vulnerable to fraud”.

In raising these concerns, Knowles J highlighted that the disclosure orders made by the court — and not the arbitral tribunal — were key to discovering the true depth and consistency of corruption in the case. The arbitration was “not a fair fight”, based on the imbalance of resources between the parties. Despite inexcusable delays and a lack of engagement on the Nigeria's part, it was compromised due to the “most severe abuses of the arbitral process” by P&ID, and it did not consider or attempt the arguments needed in such a complex case. The confidential nature of the proceedings ensured that there was no accountability or scrutiny of the arbitration process in a case where a state and significant sums of public money were involved.