Legality of P&ID $9.6bn award

Tayo Oke, [email protected]^[1]

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.

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

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.