P&ID’s $9.1bn award and Nigeria’s fight against a ‘seat’

The Nigerian Government has taken an uncertain path toward addressing its dispute with Process and Industrial Developments Limited (P&ID), a shadowy British engineering company with whom Nigeria entered into a Gas Sale and Purchase Agreement (GSPA) in 2007.

Under the terms of the GSPA between the parties, the Nigerian Government was to supply natural gas (wet gas), at no cost to P&ID, via a government pipeline, to the site of P&ID’s production facility. P&ID was to construct and operate the facilities necessary to process the wet gas by removing the natural gas liquids (NGLs) contained within it, and to return to the Nigerian government lean gas suitable for use in power generation or other purposes, at no cost to Nigeria.

For its efforts, P&ID was to be entitled to the NGLs stripped from the wet gas. The GSPA was to run for 20 years from the date of the first regular supply of wet gas by the Federal Republic of Nigeria (FRN). The agreement was to be governed by Nigerian law. The stated “venue” of any arbitration was to be London, England.

The arbitration panel concluded that the FRN repudiated its obligations under the GSPA. The company had therefore suffered a loss in income over 20 years from the sale of the NGLs. This amounted to approximately $6.59 billion being the present value of income which would have been earned in Nigeria plus interest at 7 percent per annum from the 20th of March 2013 until the date of the final award and thereafter payment.

The seat of arbitration

One particular point was fatal to Nigeria’s strategy in the arbitration i.e. the seat of the arbitration. The seat of arbitration is a notional concept and not a physical one. It refers to the juridical context of an arbitral proceeding. The choice of the seat determines, for example, which court can grant an order in aid of arbitration or which court can exercise supervisory, curial jurisdiction over an arbitral proceeding.

In the P&ID arbitration, because Nigeria’s lawyers sought and obtained these orders in Nigeria and succeeded here with an order restraining the parties in the suit from seeking and or continuing with any step, directly or indirectly in the arbitral proceedings pending the hearing and determination of this suit.

The tribunal, relying on the UNCITRAL model law which forms the basis of the Nigerian Arbitration Act and also on the Nigerian Supreme Court case of Nigerian National Petroleum Corporation (NNPC) versus Lutin Investments held that the choice of London as the place of arbitration (and not merely the venue for particular steps in the proceedings) and the fact that the Nigerian government had acted in the proceedings on the assumption that London was the seat of the arbitration made London, England the seat.

The proceedings in Nigeria were a waste of time and resources.

I also fear that the current approach by the government in addressing the fall out of the case (which is now a judgment of the High Court of England) may suffer the same fate if not properly directed. Officials have made statements like, “the underhanded manner in which the contract was negotiated and signed.” … “Indications are that the whole process was carried out by some vested interests in the past administration, which apparently colluded with their local and international conspirators to inflict grave economic injury on Nigeria and its people.”

These may well be true. Available record on P&ID and its now late Chairman, Michael “Mick” Quinn paint a picture of a tapestry legal form utilised basically as a conduit to siphon public funds from Nigeria through contracts and dodgy arbitration references.

Based on the vague provisions of the GSPA in relation to the seat of arbitration that Nigeria had a good chance to determine the seat before submitting to Tribunal’s arbitral jurisdiction, it could have at least attempted to agree on a seat before submission. It is not clear that it did this.

More importantly, Nigeria should have clearly chosen Nigeria as the seat of its arbitration, in the GSPA. If, for example, the negotiating team had exercised a bit more diligence, it would have known that the promoters of P&ID had previously entered into a $5 million deal with Nigerian Airforce and under similar circumstances as the current case commenced arbitral proceedings against Nigeria and won.

The difference, in that case, was that the seat of arbitration was in Nigeria and the promoters had trouble collecting their award.

A senior executive sent a message to his colleagues stating, “The moral of the story is that ideally, the seat of arbitration should be outside of Nigeria and preferably London.” In the GSPA, he got his wish. A second question is why, if Nigeria has evidence that the contract was concluded in an “underhanded manner”, it did not seek to set aside the award?

Under the UNCITRAL rules, one basis to set aside an award is public policy. While hard to establish, decision-based on article 34.2.b.ii UNCITRAL fraud may have sufficed.

The cases have held that the act complained of, must be so clear as to be “contrary to the fundamental conceptions of morality and justice” of the forum “shock the conscience” … or is “clearly injurious to the public good. In this respect, the Nigerian security agencies and the Ministry of Justice had a crucial role to play to show proof of the nature of the contract either in the arbitral process or in its immediate aftermath.

Oladiran Ajayi

Oladiran Ajayi is a Lagos based lawyer with experience in international arbitration