Legality of P&ID $9.6bn award


Tayo Oke

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Justice Christopher Butcher of the high court in London, last week, caused an uproar in Nigeria and beyond when he upheld the court of arbitration’s award of $9.6bn against the country in a case brought by the Process and Industrial Developments Ltd (P&ID), a company with which the country entered into a contractual relationship in 2010 for processing and refining natural gas convertible into electrical energy and other domestic uses. Nigeria was found to have been in breach of contract by not following through with the deal entered into by the administration of the late President Umaru Yar’Adua, and purportedly disowned by current President Muhammadu Buhari.

 Nigeria was taken to arbitration under the terms of the agreement in 2015, which handed down an original award of $6.6bn. It has since accumulated substantial interest making it $9.6bn as of today. It is the decision of the arbitration which has now been turned into the judgment of the high court. That effectively entitles the applicant, the P&ID Ltd, to impound the assets of the Federal Government of Nigeria wherever located in the world, to the value of the award, estimated to be 20% of the country’s external reserves.  My comment in this write-up is squarely from the perspective of the law, devoid of politics and morality.

Nigeria entered into an agreement with the P&ID to build a “state-of-the-art” gas processing plant to refine natural gas. The company then went ahead to commit several millions of dollars of its own money into the project on the expectation of a windfall from the deal later. In international contract negotiations of this nature, the nuts and bolts of the agreement would be trashed out, including what happens in case of a breach. In particular, provision would be made for dispute and method of its resolution should one arise between the parties. The “applicable law” to govern such a resolution and the “forum” (tribunal) where the case would be heard, would also have been worked out. By this very fact, therefore, why is the arbitration of a contract entered into in Nigeria, and designed for performance on Nigerian soil being litigated in the United Kingdom instead of Nigeria? The answer is the bargaining position of the parties involved at the time of the contract negotiation. It is commonplace that whichever party is in a stronger position would insist on the “applicable law” and forum being located in their home country. In this particular case, one (the P&ID) has technology, the other (Nigeria) has natural resources.  Decide which is stronger.

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The next salient point is the appointment of arbitrators to settle the dispute. What normally happens is that the two parties in a dispute appoint an arbitrator each, then, a chairman is appointed by mutual consent. So, Nigeria appointed Bayo Ojo, (SAN), while the P&ID appointed its own national, Evans Anthony. They then jointly appointed Lord (Baron) Hoffman as chairman. This is precisely where it all went horribly wrong for Nigeria. Cases of this nature are won and lost prior to the hearing for, process matters much more than substance and actual deliberation. Let me explain with a football analogy.

Imagine a Champions’ League football final between a UK football team, say, Arsenal and a Spanish football team, say, Barcelona. Then, further imagine that the match is not only being played in Spain, the home turf of the opponent, but is also being refereed by a Spaniard. You can bet your bottom dollar that the UK Football Association would protest and kick a fuss to no end. We can safely say that this scenario would not even be allowed in any event. In the world of commercial arbitration, however, it is routine. By consequence, therefore, justice may have been done in the P&ID case, but it has clearly not been seen to have been done. That is the first important failure of the Nigerian legal team. If the arbitration must be heard in the UK, then, for heaven’s sake, insist on a non-British citizen to preside as Chair. It can be done; indeed, it is done.

There is another, even bigger point of failure to highlight. If you must have your case heard and presided over by a citizen in the country of the other party, then, do your homework on whoever is chairing the panel. Look closely at their judicial record to glean something in their jurisprudence that could give you a BIG clue as to the likely view they would take in the case at hand. If the Nigerian legal team had asked me to consult for them on a chairman for the arbitration panel, I would have strongly advised against the choice of the highly regarded, but eminently predictable Lord Hoffman based on his past judicial pronouncements. He has recorded several landmark decisions, which would have pointed a smart lawyer to only one conclusion here. The most cited of his landmark rulings came in; “Investors Compensation Scheme Ltd v West Bromwich Building Society” [1997] UKHL 28, where he set out a “contextual approach” to the issue of a breach of contract based on the following five principles:

  1. What a reasonable person having all the background knowledge would have understood
  2. Where the background includes anything in the ‘matrix of facts’ that could affect the language’s meaning
  3. But excluding prior negotiations, for the policy of reducing litigation
  4. Where meaning of words is not to be deduced literally, but contextually
  5. On the presumption that people do not easily make linguistic mistakes
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Any careful parsing of the above would have set the alarm bell off within the Nigerian legal team for; “a reasonable person having all the background knowledge would have understood” really means a Briton like Lord Hoffman in effect. Nigeria’s special background knowledge, and business environment are of no import to him. So, when people in government now cry blue murder, that the whole contract was a sham, and the circumstances questionable, etc, that is simply whistling in the dark, I am afraid. There is also the “presumption”, according to Lord Hoffman’s formidable judicial mind, that “people do not easily make linguistic mistakes”. I beg your pardon, my Lord, people using English language as their second language could fall into a trap here, even if they are otherwise versed in law. Lord Hoffman ordinarily takes and applies an expansive interpretation of contracts, which should have sounded a high octane alarm on the suggestion of his nomination to chair the arbitration panel.

I would conclude by saying that Nigeria lost the case for want of due diligence. Nigeria has been caught napping before. The case against Cameroon over the resource-rich Bakassi region was lost in a similar fashion of tardiness and inadequate preparation. The Central Bank of Nigeria Governor, Godwin Emefiele, was heard talking tough on this issue a couple of days ago. “The CBN is going to step forward and strongly defend the country and the reserves of the Federal Republic of Nigeria”. This is medicine after death, I am afraid. Besides, the P&ID is not waiting for a bank transfer from the CBN; they are looking out for valuable Nigerian assets anywhere in the world to seize. Nigeria willingly took part in the judicial process, even her counsel on the panel, Bayo Ojo, (SAN), himself found against the government, diverging only on the amount of the fine. That undermines any notion that the process was unfair to Nigeria. All the country can hope and plead for now, on appeal, is a recalibration of the award leading to a massive, and drastic reduction in its quantum. Cancellation in its entirety would make a mockery of the whole judicial process. Meanwhile, the P&ID’ s lawyers have promised to “vigorously enforce” the company’s rights. You can hardly blame them for laughing all the way to the bank.

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