In 1999, Enron Nigeria Power Holding, Ltd (“ENPH”) entered into a power purchase agreement (“PPA”) with Nigeria, Lagos State, and the National Electric Power Authority of Nigeria. The PPA envisioned construction of electricity generation units in three phases, however, shortly after its execution, the PPA was deemed invalid by the Nigerian Attorney General and had to be amended. Phases I and III of the PPA were sold to another entity, while ENPH retained its Phase II obligations.
Enron Corp., ENPH’s parent company, collapsed in November 2011 and filed for bankruptcy in early December that year. ENPH assured Nigeria that it was not affected by Enron’s bankruptcy. Then, some years later, ENPH wrote to Nigeria that it intended to implement Phase II of the PPA. Nigeria, however, informed ENPH that the phase was suspended and ENPH could not perform. ENPH then initiated an arbitral proceeding pursuant to the arbitration agreement contained in the PPA, which provided for ICC-administered arbitration seated in London.
The ICC tribunal found that Nigeria had breached the PPA almost a year prior to Enron’s collapse, for its failure to meet certain conditions prior to ENPH commencing Phase II. During the arbitration, Nigeria argued, inter alia, that Enron was a party to the PPA and that its participation in the project was an express or implied term of the PPA. The tribunal, however, found that Enron was not a party to the PPA and that the integration clause therein foreclosed Nigeria’s arguments in this regard.
Nigeria also argued that it had been induced to enter into the PPA as the result of fraud, in that ENPH led Nigeria to believe that Enron was a party to the agreement and was a necessary element to ENPH’s performance under the PPA. The tribunal found that no misrepresentations hade been made and that Enron was not named anywhere in the PPA. It determined that Enron’s accounting fraud had no connection to ENPH or to Phase II of the PPA, so these arguments failed.
The tribunal awarded ENPH $11.22 million in damages, plus interest, costs and expenses, and ENPH filed a petition to confirm the award before the D.C. district court. After a procedural dispute related to service of process, Nigeria argued that enforcement of the award should be denied pursuant to Article V(2)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. § 201, et seq. (the “New York Convention“), because its enforcement would violate the public policy of the U.S. that one should not profit from his own fraud. ENPH further argued that Nigeria waived any right to challenge the award, citing the PPA arbitration clause which stated that the parties “expressly waive . . . any right to challenge an award by the arbitrators anywhere outside the place of arbitration agreed herein.”
The circuit court explained that, unlike Article V(1) procedural defenses, Article V(2)(b) of the New York Convention cannot be waived by a party because public policy violations implicate the integrity of the enforcing court. Yet the circuit court determined that the public policy defense did not apply. The defense is to be construed narrowly, and is only available when the arbitration award tends clearly to undermine the public interest, the public confidence in the administration of the law, or security for individual rights of personal liberty or of private property. While the circuit court found that enforcing a contract with an illegal purpose, or one induced by fraud, would violate public policy, the circuit court deferred to the tribunal’s findings that there had been no fraud in ENPH’s execution of the PPA.
The circuit court thus refused Nigeria public policy argument and affirmed the judgment of the district court.
Enron Nigeria Power Holding, Ltd. v. Federal Republic of Nigeria, 844 F.3d 281 (D.C. Cir. 2016) [click for opinion]
A version of this post originally appeared in the March 2017 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.