P&ID deserves only $250m in damages, says ex-AGF in dissenting decision

A former Minister of Justice and Attorney General of the
Federation (AGF), Bayo Ojo (SAN) does not believe that the Irish
company, Process and Industrial Development Limited (P&ID),
deserves more than $250 million in damages as against the
$6.5billion initially awarded by a tribunal in the United Kingdom
(UK).

Ojo, who was part of the three-man arbitration tribunal that
heard the case, noted that the majority decision of the tribunal
failed to consider vital evidence presented by Nigeria and which
would have assisted it to reach a just and fair conclusion.

He expressed this view in his dissenting decision, which The
Nation sighted in Abuja.

Ojo who served in the Obasanjo Administration particularly
disagreed with the various elements considered by the two foreign
members of the tribunal, which sat in London, in arriving at the
huge damages awarded against Nigeria.

Leonard Hoffmann and Anthony Evans had, in their majority
decision, dated January 31, 2017 estimated the damages due to
P&ID, to be paid by the Nigerian government, represented by MPR
at $6,597,000,000, with 7% interest calculated from March 20, 2013
until payment.

They said, in the final majority decision, “This is the final
award in the reference, the tribunal having previously issued two
partial final awards. By its first partial final Award dated 3 July
2014 the tribunal ruled that it had jurisdiction and that the GSPA
(Gas Supply and Processing Agreement) was valid and binding. By its
second partial final award dated 17 July 2015 the tribunal decided
that the government had repudiated the GSPA and was liable in
damages to P&ID.

“This final award deals with the quantification of the damages
for which the government is liable. The effect of the tribunal’s
decisions on what P&ID’s expenditure and income would have been
if the GSPA had been duly performed is that the net present value
of the profits which would have been earned is $6,597,000,000. This
is the measure of damages.

“It is a very large sum because (a) it is the present value of
income which would have been earned over a long period and (b) the
GSPA would have been very profitable for P&ID and (although the
tribunal has not had to make any findings on the point) probably
for the government as well.

“We, Leonard, Lord Hoffmann and Sir Anthony Evans, having read
the parties’ written evidence, pleadings and submissions and having
heard their oral evidence and submissions, and having carefully
considered the same and for the reasons stated above, make our
final award as follows, namely we order the respondent (MPR of
Nigeria) to pay to the claimant (P&ID) the sum of
$6,597,000,000 together with interest at the rate of 7% from 20
March 2013 until the date of this award and at the same rate
thereafter until payment.”

But, Ojo, who agreed with the earlier part of the majority
decision, which related to introduction, the parties and their
lawyers; the governing law and arbitration clause; procedural
history and the finding on liability, rejected the conclusion as it
related to damages.

He held that P&ID deserved to be paid $250million in
damages, to cover only three years – 2015 to 2017.

Ojo said: “I am unable to agree with the conclusions reached
therein. I hereby issue the following dissenting award. I shall now
proceed to the measure of damages which is where I differ. The
points of contention on damages relate to four broad issues namely:
Mitigation, Capital Expenditure (Capex), Operating Expenditure
(Opex) and Yield.”

On mitigation, Ojo faulted the majority decision that Nigeria
did not prove that P&ID could have mitigated the loss it would
have suffered for the duration of the agreement as a result of the
country’s alleged breach of the contractual agreement.

He held that since the firm admitted that it was obligated,
under the agreement to take steps to mitigate such loss, the burden
of proof automatically shifted from the respondent (Nigeria) to the
claimant (P&ID).

Ojo was also of the view that the claimant was only entitled to
damages for three years, not the entire duration of the agreement,
as erroneously held in the majority decision.

“As I earlier stated, contrary to the suggestion of the
majority, the Claimant clearly admitted its duty to mitigate by
stating in paragraph 28 of the Claimant’s written reply on the
issue of damages that ‘it is accepted that P&ID was under a
duty to mitigate its loss whether as a matter of Nigerian or
English law.’ This admission cannot be disregarded.

“The claimant having admitted that it was under a duty to
mitigate loss, and yet failed to continue with any of the projects
it had put on hold; it is my considered view that the respondent no
longer had the burden to proof same. It is not tenable to award
damages on the supposition that the Claimant will not be able to
find an alternative work or project for twenty years.

“The crucial issue is, for what part of the 20 years it is
reasonable to compensate claimant, bearing in mind the admitted
duty to mitigate and the fact that it had put other projects on
hold and which It can return to immediately.

“Considering that the breach occurred in 20l3, and that the
project could not have started yielding proceeds earlier than 2015,
it means that the claimant had from 2013 to attempt the mitigation
of its damage or loss. Therefore, a period of three years from 20l5
to 20l8 is reasonable.

“Mitigation of damages entails reduction or amelioration of the
loss occasioned by the breach. The majority opinion seems to
misconceive and misplace the duty to mitigate having been admitted
by the claimant. In the instant matter, there is admission by
claimant that It put other protects on hold in order to undertake
the project contemplated under the GSPA.

“In any event, it is absurd or anomalous for claimant to admit
the existence of a duty on itself, and then, without any evidence
by way of a discharge of that duty, for the majority opinion to
state that the respondent has not proved what other work claimant
would have undertaken.

“The party that has the duty has the burden to prove the
discharge of that duty under Nigerian law. The claimant clearly
bore the duty to prove its effort at mitigation. It is
inconceivable, untenable and indefensible for Claimant to fold its
hands and ask for damages for twenty years.

“Again, as l earlier stated, assuming the claimant is paid for
20 years, does the respondent become subrogated to any income that
claimant might earn from subsequent work within the 20-year
period?

“In view of all the above, I find that the claimant is not
entitled to damages for loss from the breach for more than three
years,” Ojo said.

In faulting the majority’s reasoning in computing what
constituted the claimant’s capital expenditure (CAPEX) and
operational expenditure (OPEX) Ojo noted that the other two members
of the tribunal ignored most evidence led by the respondent on the
issue, particularly as it relates to security and other challenges
in the Niger Delta region.

He said: “It will be a travesty to ignore the evidence of the
respondent on CAPEX simply because it didn’t follow the same
methodology adopted by the Claimant. The burden is always on the
Claimant to establish their case.

“The majority award suggested that respondent offered no
evidence on this issue. The evidence of the respondent’s expert on
CAPEX spans several pages of the record. The respondent was
provided with the Claimant’s expert report on the issue of
CAPEX.

“He, the respondent’s expert, testified to the fact that the
claimant’s estimates, as contained in the Claimant’s expert’s
report, were understated by about 40%. This was maintained by that
witness throughout cross examination.

“He testified that the figures on CAPEX should be raised to 40%.
This was after looking at the item by item estimates made by
claimant’s expert. It would be grossly unfair to characterize such
evidence as irrational.”

Ojo also faulted the majority conclusion on the estimated yield
of the project and upheld the respondent’s argument as it relates
to what would have constituted the percentages of yield and
production time bearing in mind the challenges identified.

He then held the “claimant ought to have mitigated its loss and
cannot sit and fold its hands for twenty years expecting a windfall
from the respondent. As a result; I hold that the claimant is
entitled to damages for only three years.

“However, in view of my decision on the obligation of the
claimant to mitigate damage. I hold that the relevant period is
three years from (20l5-20l8). This is because although the breach
occurred in 2013, if the contract had not been broken. The claimant
wouldn’t have started enjoying the fruit thereof until 2015. ”

Ojo further held that the operating expenditure (OPEX) that the
claimant could have incurred had the breach not occurred should not
be less than $75million, while the capital expenditure (CAPEX)
should not be less than $US11,986,000 US dollars

As against the majority’s estimation of over 90%, Ojo put the
estimated annual operating percentage of the plant (had it been
built) at “not more that 60% of the time in a year.”

He added: “Having considered the relevant contract,
correspondence and other documents put before me, and having
carefully considered the written submissions of the parties.

“I hereby find, award and declare as follows: the respondent
shall pay the claimant the sum of $250million (250.000.000) US
Dollars as damages for breach within ninety days from the date of
this award.”