The $6bn judgment pitting Nigeria against a London court
A legal challenge by the west African state has sparked questions about transparency in arbitration courts
In January 2010, two Irish businessmen secured a 20-year contract to turn Nigeria’s vast gas reserves into power. But the government never built a promised pipeline to feed gas to the processing plant, and their British Virgin Islands-registered company, Process and Industrial Developments, or P & ID, never so much as put spade to soil on its planned site in a riverine corner of south-east Nigeria.
P&ID, founded by Michael Quinn and Brendan Cahill, says it hoped to provide gas to generate power for millions in one of the least electrified countries in the world. Instead, a little over two years later, the company began an arbitration action against Nigeria that accused the west African state of a breach of contract. In 2017, a panel of three arbitrators voted 2-1 to award P & ID the full sum of its claim for future profits tied to the original project: a stunning $6.6bn. With interest, the award has ballooned to almost $10bn, or a quarter of the foreign reserves of Africa’s largest economy.
After missing multiple deadlines to appeal — and only after P & ID applied to the British commercial court, a branch of the High Court, for enforcement — Nigeria challenged the award. On Monday its lawyers will ask a High Court judge in London to allow them to present what they say is newly discovered evidence that both the contract and Nigeria’s arbitration defence — under a previous administration — were, as President Muhammadu Buhari said in a speech to the UN last year, “a sham” that was “attempting to cheat Nigeria out of billions of dollars”. P & ID denies any wrongdoing, and says that Nigeria has invented the accusations to avoid paying what it owes and to delay the seizure of state assets.
“The government is firmly committed to overturning the injustice of the award — no matter how long it takes,” attorney-general Abubakar Malami told the Financial Times. “We will pursue all available legal avenues in our fight to secure justice for the people of Nigeria.”
The case has shone an uncomfortable light on the role of arbitration courts in resolving multibillion-dollar disputes between companies and even countries. Critics argue that the behind-closed-doors nature of such cases presents a public interest risk, particularly when sovereign states are concerned.
Arbitration clauses are standard in most business contracts to give parties a speedy, flexible way to settle disputes. Parties generally specify the “seat” where the arbitration will take place — a neutral location like London or Paris — which determines which national courts have jurisdiction over the process.
Advocates say the system generally works, yet the fact that only the most eye-popping cases make it into the public domain — while the majority remain secret — unsettles critics, who say justice involving states should be hammered out in the open.
The only reason the Nigeria case came to wider public attention is because P & ID went to court to have the $6.6bn judgment enforced.
How one deal sparked a decade of legal action
January 11, 2010
Nigeria signs 20-year contract with P & ID, in which the company would build a gas processing plant.
August 22, 2012
P & ID begins arbitration process, alleging breach of contract
July 17, 2015
London tribunal finds that Nigeria had breached the contract and so was liable to P & ID
January 31, 2017
Arbitration tribunal issues final award of $6.6bn and attaches a pre- and post-judgment interest rate of 7 per cent
January 28, 2018
Nigeria requests fraud investigation by the Economic and Financial Crimes Commission into the P & ID deal
March 16, 2018
P&ID applies to the English High Court to enforce the final award and begins a parallel process in the US
Sept 26, 2019
English High Court allows P & ID to enforce award but grants Nigeria permission to appeal the award and said the company could not begin seizing state assets
January 24, 2020
Nigeria requests a hearing to present what it says is evidence of fraud
“There’s no way the arbitrators would have sat in the open and considered this level of ridiculous damages against a country in the public glare,” says Olanrewaju Suraju, chairman of Human and Environmental Development Agenda, a Lagos-based NGO. “There’s no way that under public scrutiny anyone would . . . award such an egregious amount of damages.”
Designed to be free of political interference, tribunals offer companies, who may not trust courts in the countries where they operate, some protection. Depending on the rules they have agreed, parties generally select one arbitrator each to sit on a three-person panel, from senior members of the judiciary and industry experts. Awards, enforceable in over 160 countries, are notoriously difficult to overturn.
“Arbitrators are not tasked with rooting out the evils in society but to address the issues that are put before them,” says Jeremy Wilson, co-chair of law firm Covington & Burling’s arbitration practice. “The role of the arbitrator is to resolve a dispute between relevant parties, which is different to the role of a judge or court.”
London has become a particularly popular place to arbitrate because of its roster of former judges, top-flight lawyers and the reputation attached to English law, which underwrites business contracts the world over. The London Court of International Arbitration dates back to 1892 and its arbitrators boast specialisms in fields ranging from maritime disputes to engineering.
The UK capital in particular fosters confidentiality through rules in applicable law, which means the bulk of the arbitration court’s decisions never become public. Parties benefit from keeping their commercial or state secrets hidden, but a roster of cases have triggered questions about the extent to which they should remain confidential.
Matthew Saunders, a disputes partner at the law firm Ashurst, says: “Money [in arbitration involving states] can end up being spent in circumstances where the public has had no ability to scrutinise the process, or learn from it.”
In 2014 the Russian state was hit with what remains the most punitive arbitration award in history — a bill for $50bn awarded to the former owners of Yukos, a Russian oil group expropriated by the state. In 2014, a panel in the Permanent Court of Arbitration in The Hague ruled Russia had destroyed the company once owned by jailed oligarch Mikhail Khodorkovsky for political reasons — triggering a fightback by Russia which resulted in defeat in the Dutch appeals court in February.
In another London case, detailed in a 2018 Court of Milan judgment, ex-Nigerian oil minister Dan Etete in 2011 faced an ex-Russian diplomat who sought $65m in the arbitration court for his role as a middleman in the sale of oil block OPL 245. The tribunal ruled in favour of Mr Etete, who, in separate cases, has been accused in UK and Italian courts of having awarded himself the block when he was minister, and then selling it in an allegedly corrupt $1.3bn deal involving Royal Dutch Shell and Eni. Mr Etete has denied any wrongdoing throughout the OPL 245 affair.
Simon Taylor, co-founder of the campaign group Global Witness, says the arbitration between Mr Etete and the Russian middleman was “absurd”.
“Decisions around sums of money which belonged to a state and are therefore of supreme public interest should not be going on in secrecy,” says Mr Taylor. “It’s absolutely extraordinary and effectively makes those courts potential and in some cases actual laundering entrepots for illicit activities.”
The critics of investor-treaty arbitration — cases between investors and states — range from ex-US secretary of state Hillary Clinton to Jean-Claude Juncker, former head of the European Commission, who called them “secret courts”.
About one-third of all claims issued in London’s commercial court are matters arising from arbitration awards, with more than 300 challenges applied for in the three years to October 2019 on the basis of irregularity or a point of law. A much larger number of awards never see the light of day.
In 1960s Dublin, pre-Beatles showbands including Maxi, Dick and Twink, and Daddy Cool & the Lollipops ruled the day. Two decades later, the bands’ manager Michael Quinn transformed himself into an industrial consultant for projects in Nigeria, and over the course of 30 years undertook projects in port upgrading, industrial gas tank manufacturing, and military equipment repair.
One project resulted in Quinn, who died in 2015, and his business partner Mr Cahill winning a $2.3m decision against the Nigerian government before a Nigerian arbitration panel. He was also the subject of charges, later dropped, of possessing secret military materials.
The gas processing project emerged from plans to electrify Nigeria under then-oil minister Rilwanu Lukman — who Nigeria now claims was among a group of corrupt officials involved in the deal.
Nigeria says that P & ID did not invest any money in the project, though it spent $40m on exploratory work, which was financed by Nigerian billionaire and retired general Theophilus Danjuma. One of Mr Danjuma’s companies said in a letter to Nigerian fraud authorities that P & ID had signed an agreement with the petroleum ministry “behind our back”.
At the heart of Nigeria’s latest filing is the claim that Lukman — who died in 2014 and was never charged with any wrongdoing connected to P & ID — conspired with Quinn and others on a deal designed to fail and that his successor, Diezani Alison-Madueke, with others steered the arbitration to fail as well, so that all parties could profit. Mr Malami argues that two of England’s most accomplished jurists — Lord Hoffman and Sir Anthony Evans — who wrote the majority award, were hoodwinked.
At the very least, says one veteran London arbitration lawyer, the figure they arrived at — $6.6bn — is “commercially naive”.
“These are serious arbitrators,” the lawyer says. But “nobody makes this kind of money in Nigeria”. Lord Hoffman and Sir Anthony declined to comment.
P&ID dismisses Nigeria’s case as fabricated to avoid paying up, adding that both parties called expert witnesses to support their competing claims, but the panel agreed with P & ID.
“Nigeria raised multiple arguments, both in terms of the merits of the case and the enforceability of the contract, and the damages at various points,” says Andrew Stafford, a Kobre & Kim lawyer representing P & ID in the High Court case. “Most of the evidence shows that they were trying their hardest.”
On Monday, Nigeria will try to convince a judge otherwise. Its lawyers want to introduce what they say is new evidence of an alleged fraud. The government says that officials — including Lukman and Ms Alison-Madueke, who has been charged with fraud and money-laundering in connection with other cases but not P & ID’s, knew the agreement was a “scam” and “stood to make financial gains” if P & ID won the arbitration case.
Nigeria says it will submit as evidence confessions from two government officials who admit receiving bribes, along with their bank records that it says show tens of thousands of dollars in deposits from companies linked to P & ID. One of the officials, Taofiq Tijani, who chaired the government technical committee that reviewed the gas plant contract, says he received a bag with $50,000 in cash from the late P & ID project director Neil Hitchcock after a dinner in Abuja with Mr Quinn, according to a January 2020 statement filed in London by Mr Malami.
Two former P & ID officials in Nigeria have pleaded guilty to money laundering and tax evasion on behalf of the company’s local Nigerian subsidiary, in what the company called a “show trial”.
The Nigerian claims are based on “fabricated evidence, illegal detentions, coercion of witnesses, threats to family members, and forced confessions”, P & ID said in a December statement after Nigeria issued a warrant for the extradition of Quinn’s son Adam, who Mr Malami says in his witness statement is a director of Lurgi Consults, one of the companies that Nigeria says bank records show made payments to Mr Tijani.
A different burden of proof
Arbitrators and supranational groups have grown concerned about the limited transparency of state-related arbitrations, and the ability of tribunals to spot crime. The “Mauritius convention” — formally known as the UN convention on transparency in treaty-based investor-state arbitration — set new transparency standards for investor-treaty cases in 2014 and last year the Basel Institute on Governance launched guidance to help arbitrators spot corruption red flags.
Tribunal panels are less well equipped to root out corruption than national courts because they lack the investigative powers of the state to compel third-party evidence. Safeguards are put in place to prevent tribunals from validating corrupt contracts. But there is no international standard dictating the burden of proof for proving criminality in arbitration tribunals, unlike the regulations that cover those matters in national courts. Claims of corruption are also frequently used as a tactic, say lawyers, by parties wishing to overturn awards — exactly what P & ID is accusing Nigeria of doing now.
“Arbitrators face two competing pressures when it comes to protecting tribunals’ integrity,” says Jayne Bentham, a partner at Simmons & Simmons, the law firm. “Arbitrators must try to root out corruption but also defend the arbitral process and the enforceability of awards against tactical attempts to prevent justice being done.”
In the most extreme cases, arbitration has actually been used to execute fraud. In February 2019, three arbitrators and two employees of a Cairo arbitration tribunal were convicted by an Egyptian criminal court for masterminding what Chevron, the US energy company, called a “sham” arbitration against it worth $18bn.
Despite the convictions, Chevron was still forced to defend itself against the $18bn award in a Californian district court, where a federal judge dismissed the attempt to enforce the award. In a statement, Chevron said it had been “targeted in a criminal scheme”.
Seizing state assets
Lawyers watching the case say Nigeria is unlikely to succeed. The country is now more than two years past its deadline to challenge the original award. And London’s courts are notably unwilling to grant appeals in such proceedings.
In the three years to September 2019, only nine appeals to arbitration awards brought on the basis of points of law or serious irregularity were upheld out of more than 300 put before the High Court.
While Nigeria may still be able to appeal, if the judge ultimately denies its request to present new evidence, it is probable that P & ID will be allowed to begin seizing state assets that amount to almost five times Nigeria’s 2019 national education budget, eight times its health budget, and four times the counter-terrorism budget.
“To allocate such a huge amount,” says Mr Suraju, the good governance advocate in Lagos, “I think it was not just an aberration, it was a conspiracy against the future of a nation and the people of that country.”