A Cautionary Tale for Arbitration Practitioners and Lawyers

With a third of its total annual budget on the line, Nigeria has successfully overturned an arbitration award totalling more than $11 billion. Our Construction, Infrastructure & Utilities team reviews this decision which is important for arbitration practitioners and lawyers.

The Commercial Court in England & Wales has ruled that the arbitral award granted in favour of Process & Industrial Developments Limited (P&ID) in 2017 against the Nigerian government had been obtained by fraud. This was found to be contrary to public policy.

Background

P&ID entered into a Gas Supply and Processing Agreement with Nigeria in January 2010. The agreement was to build and operate a gas processing facility in Nigeria.

P&ID brought arbitration proceedings against Nigeria, in 2012, alleging breach of contract arising from Nigeria’s failure to provide P&ID with “wet gas” for processing. Despite this alleged failure by Nigeria, P&ID had not performed their side of the contract as they failed to build processing plant required for the operation of the contract.

The tribunal awarded P&ID compensation of $6.6 billion, with 7% interest per annum, in 2017. P&ID was later granted an order to enforce the award against Nigeria, pending an appeal by Nigeria.

In the interim, Lismore Capital, a Cayman Islands based entity, acquired a 75% stake in P&ID. Lismore Capital was represented by the same counsel who acted for P&ID during the arbitral proceedings. Accordingly, Lismore Capital stood to gain a substantial portion of the arbitral award if the Commercial Court found in favour of P&ID.

Decision

The Commercial Court found that Nigeria had established that the arbitral award had been obtained by fraud contrary to public policy within the meaning of section 68 (2) (g) of the Arbitration Act 1996. As a result, the Commercial Court held the award should be set aside.

Mr Justice Knowles found that P&ID had obtained the arbitral awards by:

1. Paying bribes for entry into the Gas Supply and Processing Agreement
2. Paying bribes during the arbitration, and
3. That the lawyers acting for P&ID had gained access to Nigeria’s privileged documents during the arbitration

Mr Justice Knowles concluded that P&ID had obtained the award by “practising the most severe abuses of the arbitral process”. In addition, the Commercial Court held that the arbitration was a “shell that got nowhere near the truth” due to dishonest witnesses and improper conduct by lawyers acting for P&ID during the arbitration process.

This improper conduct, by not disclosing that they had access to Nigeria’s privileged documents, was described as “indefensible”. Mr Justice Knowles noted that the lawyers involved stood potentially to gain substantial sums if P&ID were successful. Whilst the lawyers reject the allegations of wrongdoing, Mr Justice Knowles has referred both to the Solicitors Regulation Authority and the Bar Standards Board.

Additionally, Mr Justice Knowles expressed concern over the arbitration process, noting that due to the privacy attaching to the arbitration process, the process itself “needs further attention where the value involved is so large and where a state is involved.”

Comment

Whilst P&ID has indicated that it is considering its options following the decision by the Commercial Court, this case raises several issues regarding the arbitration process. This decision is a cautionary tale for parties and lawyers involved in these disputes.

Mr Justice Knowles noted that there is a concern that the privacy of the arbitration process may be more vulnerable to a fraud than a conventional court proceeding. Of course, the privacy of arbitration proceedings is a key factor in attracting parties into the arbitration process. Nevertheless, parties and practitioners will have to consider safeguards to protect the process.

Finally, the improper conduct by the lawyers acting for P&ID in the arbitration, who stood to gain substantial sums of money if their client was successful in the process, is a cautionary example of the standard expected of lawyers involved in a dispute process. Where lawyers inadvertently handle privileged information belonging to their opponent, this should be brought to the attention of all parties immediately. These documents should be handed back to the other side as a matter of urgency. In the absence of professional conduct, procedural fairness will be compromised.

For more information, contact a member of our Construction, Infrastructure & Utilities team.

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