English High Court allows challenge to arbitral award for having been obtained by fraud and in violation of public policy

The Federal Republic of Nigeria v Process & Industrial Developments Limited, [2023] EWHC 2638 (Comm)

In a remarkable and highly consequential ruling, the English High Court delivered a judgment, dated October 23, 2023, in the case of The Federal Republic of Nigeria (Nigeria) v Process & Industrial Developments Limited (P&ID), allowing an application challenging an arbitral award(s) on the grounds that it had been obtained by fraud and the manner in which it had been procured was contrary to public policy. 

Background

This dispute stems from a Gas Supply and Processing Agreement for Accelerated Gas Development (GSPA) signed between the two parties in 2010, spanning a 20-year term. Per the GSPA, Nigeria committed to providing wet gas to processing facilities to be built by P&ID, while P&ID would retain the remaining gas liquids for subsequent sale. Following the non-implementation of the GSPA, P&ID initiated arbitration proceedings against Nigeria in 2012, alleging Nigeria’s repudiation of the contract, thus triggering arbitration. 

Initially, Nigeria contested the jurisdiction of the tribunal, a challenge which the tribunal dismissed. Subsequently, the arbitral tribunal rendered a partial final award on July 17, 2015, determining that Nigeria had committed a repudiatory breach of the GSPA, resulting in its termination upon P&ID’s acceptance of the breach and, consequently, holding Nigeria liable for damages. The tribunal issued a further award on January 31, 2017, addressing quantum with a majority decision of two-to-one. The final award imposed a liability of USD 6.6 billion on Nigeria, with interest accruing at an exorbitant rate of 7%.

Nigeria challenged all three awards on grounds set out in Section 68(2)(g) of the English Arbitration Act 1996 (Act) before the High Court, alleging bribery, corruption, and perjury both in respect of the GSPA and the arbitral proceedings. Shockingly, it was also alleged by Nigeria that some of its own lawyers at the time of the arbitration were corrupted by P&ID. In turn, for its part, P&ID expressly describes Nigeria’s case against it as “false and dishonest.”

Findings of the court

With this background, the court acknowledges the highly unusual nature of the case, where the court has delved extensively into evidence from expert and fact witnesses and cross-examination of witnesses tendered by P&ID. Following an extensive examination of the case, the court found that (a) the extremely high threshold of the existence of an irregularity under Section 68 of the Act stood fulfilled; (b) that the irregularity in question had caused substantial injustice to Nigeria; and (c) that under Section 73 of the Act, Nigeria had not waived its right to object to the “irregularity” in question.

The “irregularity” affecting the arbitral proceedings 

Section 68 asks not only whether the award was obtained by fraud but also (in the alternative) whether how the award was procured was contrary to public policy. The focus is on the process by which an award is achieved. Based on this framework, the court identified three primary reasons warranting the application of Section 68(2)(g) of the Act as an “irregularity,” namely, that the award was obtained by fraud or procured in a manner contrary to public policy.

The first was the fact that P&ID submitted evidence before the tribunal that P&ID knew to be false. This was the evidence of Michael Quinn explaining how the GSPA came about. He omitted to mention that Grace Taiga, a Nigerian official who was the legal director at the Ministry of Petroleum Resources at the time of execution of the GSPA, had been bribed to facilitate its execution. 

The second was that P&ID continued to bribe Taiga during the arbitration proceedings in order to suppress from the tribunal and Nigeria the fact that she had been bribed when the GSPA came about, described as bribery “to keep her ‘on-side,’ and to buy her silence about the earlier bribery.” Pertinently, Taiga, despite being a Nigerian official, had been produced as a witness by P&ID and, therefore, cross-examined by Nigeria.  

The third reason was P&ID’s improper retention of Nigeria’s internal legal documents that it had received during the arbitration. It retained these to monitor whether Nigeria had become aware of the deception being conducted by P&ID on the tribunal and on Nigeria as a party before the tribunal. Specifically, there was a flow of over 40 of Nigeria’s internal legal documents to P&ID during the period of the arbitration. These reasons, in the court’s mind, were a clear indication of the “irregularity” as required under Section 68 of the Act. 

Notably, the court also highlighted that its focus on the above reasons was a result of them being central to Nigeria’s challenge but did not represent the full extent of the fraud and conduct contrary to public policy on the part of P&ID that was shown at the trial. However, the court did not uphold the allegation that Nigeria’s lawyers had been bribed to make sure they lost the arbitration.

The ”seriousness” of the irregularity 

Section 68 of the Act also required a court to assess whether the irregularity resulted in or will result in “substantial injustice” to Nigeria, classifying it as a “serious” irregularity under the section if so. The court referred to the decision in RAV Bahamas v Therapy Beach Club [2021] UKPC 8, emphasizing one of the criteria to determine substantial injustice, which is established when it is evident that, had the irregularity not occurred, the outcome of the arbitration could have been significantly different.

The court determined that the arbitration would have unfolded in a radically different manner, significantly favouring Nigeria, had the fact of the bribery of Grace Taiga when the GSPA was being made been disclosed to the tribunal. This revelation would have introduced the issue of the GSPA being tainted by fraud, rendering it voidable at Nigeria’s discretion—a crucial aspect considering the arbitral tribunal’s findings of Nigeria’s repudiatory breach of the GSPA. Moreover, the court noted that uncovering this concealment would have fundamentally altered the tribunal’s approach to evaluating the rest of P&ID’s evidence. Consequently, the court concluded without hesitation that Nigeria indeed suffered substantial injustice as defined under the section, even before considering P&ID’s actions regarding Nigeria’s internal legal documents.

Whether Nigeria had waived its right to object

Under Section 73 of the Act, if a party to arbitral proceedings participates in or continues to participate in the proceedings without objecting to any other irregularity affecting the tribunal or the proceedings, they may not later raise that objection unless it can be demonstrated that at the time of participating in the proceedings, the party was unaware of and could not have reasonably discovered the grounds for the objection. In this context, P&ID contended that a reasonably diligent sovereign state would have put in issue during the arbitration the question of whether the GSPA had been preceded by payments to Nigerian officials and whether it had been procured by corruption and further, that “a reasonably diligent sovereign state would have sought disclosure of documents relating to the GSPA.”

The court recognized that Nigeria had the burden of proving that it had not forfeited the right to object. After assessing the evidence, the court noted that Nigeria had no prior knowledge of the circumstances surrounding those documents, and reasonable diligence did not demand any action from Nigeria in that regard. Therefore, the court concluded that under Section 73, at the time Nigeria participated or continued to participate in the arbitration, it was unaware and could not have reasonably discovered the grounds for its objection under Section 68(2)(g). Consequently, Nigeria did not waive its right to object under Section 68(2)(g) that the awards were obtained by fraud and that the manner in which they were procured was contrary to public policy.

The court concluded that P&ID obtained favourable awards through severe abuses of the arbitral process, granting Nigeria the right to object under Section 68(2)(g) of the Arbitration Act 1996. While it is true that there were other factors contributing to the awards, such as incompetence and neglect by various individuals representing Nigeria throughout the arbitration, these factors do not diminish the impact of P&ID’s abusive conduct. On December 21, 2023, the court issued a distinct decision on the fate of the awards (on liability and quantification). The awards were set aside (as had been sought by Nigeria) rather than being remitted to the tribunal for reconsideration. The court, however, clarified that this was not a reflection on the tribunal’s conduct but rather because the irregularity in question went to the root of the awards, which should not have come into existence at all.

Request seeking leave to appeal rejected

In its ruling dated December 21, 2023, the court also dismissed P&ID’s request for leave to appeal the High Court’s decision. Emphasizing the significance of meeting the criteria outlined in Section 68(2)(g) of the Act for a successful challenge, the court highlighted its duty in granting leave for appeals. Upon scrutiny of the proposed grounds for appeal, the court concluded that P&ID had received a fair trial and lacked genuine prospects of success based on the grounds outlined. This determination was detailed in the aforementioned ruling.

Reflections of the court

The court, while strongly condemning the corruption evident in this case, also aimed to stimulate debate and introspection within the arbitration community, among state users of arbitration, and among other courts tasked with supervising or overseeing arbitration. It urged stakeholders to consider whether the arbitration process requires greater scrutiny, particularly in cases involving substantial sums and state entities.

The court underscored the risk that arbitration, as a mechanism, may have become less dependable and more susceptible to fraud due to cases like the one at hand. It emphasized that even with a tribunal of significant experience and expertise, without critical reflection, similar instances could occur again without ever reaching the courts. 

The court emphasized the importance of counsels and experts maintaining fundamental standards of representation to effectively assist arbitral tribunals. Furthermore, the court raised the question of whether the tribunal should have taken a more proactive and interventionist approach when it became evident that one party was not being adequately represented. This prompts consideration of whether tribunals should play a more direct role in ensuring fairness and efficacy in arbitration proceedings.

Note

The arbitral tribunal consisted of Lord Hoffmann (presiding member), Sir Anthony Evans, nominated to the tribunal by P&ID, and Chief Bayo Ojo SAN nominated by Nigeria. Chief Ojo SAN published a dissenting opinion.

Author 

Meher Tandon is currently pursuing her LL.M. in international dispute settlement through the MIDS program at the joint academic centre of the Graduate Institute of International and Development Studies and the University of Geneva.