THE AUTHORS:
Maria Eugenia Bagnulo Cedrez, Associate in the International Disputes Team at the London Office of Baker Botts (UK) LLP
Verity Thomson, Legal Intern in the International Disputes Team at the London Office of Baker Botts (UK) LLP
On 23 October 2023, the High Court of Justice of England and Wales (“High Court”) overturned an arbitral award valued at over USD 11 billion against Nigeria in the case of Nigeria v P&ID. The annulment was granted under Section 68(2)(g) of the English Arbitration Act 1996 (“Arbitration Act”) on the grounds that the award had been obtained through fraud and that it was procured in a manner contrary to public policy.
The judgment is a landmark decision, notable not only for the substantial quantum in dispute, referred to by the Court as a sum “so vast that it is material to Nigeria’s entire federal budget”, (see para 4) but also as a rare instance where an arbitral award, issued by a tribunal of “greatest experience and standing” (see para 9), is set aside on the grounds of fraud.
P&ID sought leave to appeal the High Court decision under section 68(4) of the Arbitration Act. However, the request for leave was denied. In refusing P&ID’s leave to appeal application, the High Court ruled that P&ID had no real prospect of success on any of its grounds of appeal. In sum the Court states, “P&ID has had a fair trial and it has lost” and that granting leave to appeal “would not be just in all the circumstances” (see para 42).
First, this article introduces the key facts of the case. Second, it highlights the key findings of the High Court that led to its decision to set aside the award. Third, it assesses when the threshold for establishing “serious irregularities” is met under the Arbitration Act. Fourth, it offers conclusions.
Overview of the Facts
In 2010, P&ID, a company registered in the British Virgin Islands, signed a twenty-year Gas Supply and Processing Agreement (the “Contract”) with the Government of Nigeria (“Nigeria”). After signing the Contract, neither party delivered nor made significant efforts to provide the key components of the project. Nigeria failed to comply with its obligation to deliver wet gas, while P&ID did not construct the gas processing plant.
On 22 August 2012, P&ID commenced arbitration against Nigeria—relying on the arbitration clause in the Contract—claiming that Nigeria had committed a repudiatory breach of the contract by failing to supply the wet gas, thereby making Nigeria liable for over USD 6 billion in lost profits.
In 2015, the arbitral tribunal ruled in favour of P&ID and issued a separate award on quantum two years later, valuing the loss at just under USD 6.6 billion. Interest was awarded at the rate of 7%, from March 2013.
Nigeria applied to the High Court—as the seat of the arbitration was England—to challenge the arbitral awards. Key to Nigeria’s case was the allegation that the awards had been obtained by fraud and procured in a manner contrary to public policy, under Section 68(2)(g) of the Arbitration Act.
The Court found that the Nigerian Legal Director at the Ministry of Petroleum Resources (the “Director”), along with members of her family, received several payments “just before and just after” (see para 170) the entry into the Contract. It was also discovered that the Director continued to receive payments throughout the arbitration, with the apparent intention of securing her silence regarding prior instances of bribery.
The Court concluded that these payments were linked to fraudulent activities, contributing to the decision to set aside the award on the grounds of fraud and public policy.
Accordingly, the Court decided to set aside the award. In doing so, it focused on addressing the annulment application and remained silent about “the merits of the dispute” itself (see para 313).
The High Court’s Key Findings
The High Court determined that the award should be set aside on the basis of “serious irregularities”, as it was obtained by fraud and was contrary to public policy. The Court found at least three circumstances, each of which, on its own, amounted to fraud and on which basis the awards could be deemed contrary to public policy.
First, P&ID relied on a witness statement from one of the company’s co-founders who intentionally provided false evidence to the tribunal during the arbitration. The co-founder failed to mention the bribery payments that occurred when the Contract was established, despite being aware of these payments. The High Court found that the witness’s conduct was “dishonest” according to the “standards of ordinary decent people” and that “their motivation was corrupt” (see para 177).
Second, P&ID continued to bribe the Director while she was a witness in the arbitration to conceal that she had been bribed when the Contract was entered into. Nigeria claimed that the bribery was “to keep [the witness] ‘on-side’, and to buy her silence about the earlier bribery” (see para 404). The High Court established that those payments were “deliberately concealed from the Tribunal and Nigeria” by P&ID (see para 401). Nigeria obtained evidence of these payments, in part, through the disclosure of documents following a discovery order of bank account payments made by a US Court.
Third, P&ID acquired and retained Nigeria’s privileged legal documents monitoring Nigeria’s position and awareness during the arbitration. On certain occasions, P&ID acquired these documents through formal document production, while on other occasions, they were acquired “unofficially” (see para 229).
The Court assessed whether these circumstances caused “substantial injustice” to Nigeria under Section 68(2) of the Arbitration Act by referring to the material impact of the serious irregularities on the award.
The Court found that if the fact of bribery involving the Director had been disclosed to the tribunal, it would have raised the question of whether the Contract was obtained by fraud, and consequently, whether the Contract would be voidable.
In addition, the Court indicated that “the entire picture would have had a different complexion” (see para 316) if the tribunal had known that Nigeria was not, during the arbitration process itself, enjoying confidentiality of legal advice to which it was entitled.
The High Court concluded that each of these three events amounted to fraud and that the way in which the awards were procured was therefore contrary to public policy.
In addition, the Court noted (not as part of the Judge’s findings on section 68(2)(g) of the Arbitration Act) that two of the key barristers representing P&ID had “significant personal interests in the matter” and may have received “‘life-changing sums of money’” (see para 207) were the arbitration to be successful, with one barrister set to benefit by up to £850 million and the other up to £3 billion. The Court referred a copy of the judgment to the Bar Standards Board (see para 593).
When Is the Threshold for Establishing “Serious Irregularities” Met Under the Arbitration Act?
The Nigeria decision offers certain guidelines—although it indicates that they should be assessed on a case-by-case basis—to determine when the threshold for proving “serious irregularities” in an arbitration award is met under the Arbitration Act.
Section 68 of the Arbitration Act requires the Court to consider whether the “irregularity” has caused or will cause substantial injustice. The Court recognised that a “high threshold” applies to Section 68 of the Arbitration Act (see para 477).
The Court found that when assessing the existence of a “serious irregularity”, the focus should be on examining the parties’ behaviour during the arbitration and the “process by which the award was obtained” (see para 474). Compliance with the principle of due process plays a crucial role in the annulment analysis, rather than the correctness of the decision reached itself.
The Court clarified that when Section 68 refers to “seriousness”, its focus is on whether substantial injustice “has been or will be caused” (see para 499) to the annulment applicant. The Court found that there will be “substantial injustice” where it is established that, had the irregularity not occurred, the outcome of the arbitration might well have been different. The impact of the serious irregularities on the outcome of the case is crucial to this analysis.
While the Nigeria case is not the only instance of an English Court setting aside an award based on “serious irregularities”, it is one of the few (see for example, Norbrook v A Tank). In light of his findings, the Judge encouraged discussion within the arbitration community, among state users of arbitration, and within the courts questioning “the reputation of arbitration as a dispute resolution process”.
Conclusions
The Court concluded that P&ID’s actions constituted “the most severe abuses of the arbitral process” (see para 516) and created an important precedent for those wishing to challenge an award on the basis of fraud.
The decision not only establishes certain guidelines for determining when the threshold for “serious irregularities”, is met under the Arbitration Act, but also identifies risks of the arbitration process being perverted, especially in arbitrations involving state parties.
The facts and circumstances of this case raise questions about the limitations in the arbitration process for detecting fraud. The Court expressed concerns about the risk that the arbitration process becomes “more vulnerable to fraud” (see para 583), initiating a debate about the following points in arbitrations involving state parties:
- The way in which major commercial contracts are drafted (see para 585);
- The use of disclosure or discovery of documents as a crucial instrument to reveal the truth (see para 586);
- The importance of having adequate representation in arbitrations over major disputes (see para 587-8); and
- The confidentiality of the arbitration process that shields it from public or press scrutiny (see para 589-91).
The Court emphasised the ethical obligations of the counsel in arbitration to ensure a fair process for all rather than being “driven by greed…giving no thought to what their enrichment would mean in terms of harms for others” (see para 592).
The Court has prompted a discussion on potential risks within the arbitration system. It is now the responsibility of the arbitration community to reflect on and mitigate these risks and identify suitable solutions.
ABOUT THE AUTHORS:
Maria Eugenia Bagnulo Cedrez is an Associate in the International Disputes Team at the London Office of Baker Botts (UK) LLP with practice in civil law and common law jurisdictions. She specialises in international commercial arbitration and investment treaty arbitration cases. Her professional experience in arbitration covers proceedings before major international arbitration forums. Before joining Baker Botts, she served as a state counsel for a state-owned entity in Uruguay. She holds an LLM from Queen Mary University of London, along with a Bachelor of Laws, and a Bachelor in International Relations from the University of the Republic in Uruguay. She is fully bilingual in Spanish and English and is fluent in Italian.
Verity Thomson is a legal intern in the International Disputes Team at the London Office of Baker Botts (UK) LLP. Prior to joining Baker Botts, she was a judicial clerk at the Federal Court of Appeal of Canada and worked for environmental and marine branches of Canadian provincial and federal governments. Qualified in Canada, she is fluently bilingual in French and English and graduated from McGill’s Faculty of Law in 2021.
