It is often observed that successful challenges to arbitration awards are rare and that this, perhaps in itself, demonstrates the English Courts’ desire to uphold the integrity of the arbitral proceedings and the awards that arise out of them. Developments in English court procedure, most recently the changes adopted in Section O of the Commercial Court guide, seek to discourage parties from pursuing appeals without proper merit.[1] Even then, where flaws appear in the arbitral process, the English Courts remain reluctant to intervene. Parties who agree to arbitration, it is said, should respect the outcome and, save for a very limited set of circumstances set out in the Arbitration Act 1996 (the “Act“), arbitral awards will stand.
In the judgment of Mr Justice Knowles in the case of The Federal Republic of Nigeria v Process & Industrial Developments Limited[2], the arbitration community has its latest example of a rare successful challenge to an arbitral award. On this occasion, The Federal Republic of Nigeria (“FRN“) brought its challenge against three arbitral awards[3] under section 68(2) of the Act; such that it argued serious irregularity affecting the tribunal, the proceedings or the award of a kind which caused it substantial injustice. The challenge was made on the basis of subsection (g); that the award obtained by Process & Industrial Developments Limited (“P&ID“) was “obtained by fraud or the way in which it was procured being contrary to public policy“.
Factual Background
The facts out of which the challenge arose were complex, but they can be understood as follows. On 11 January 2010, P&ID signed a contract to develop gas processing facilities for FRN known as the Gas Supply and Processing Agreement for Accelerated Gas Development (the “GSPA“). Under the GSPA, FRN was to supply the facilities with quantities of ‘wet’ gas for transformation and, subsequently, power generation. Any remaining natural gas liquids retained by P&ID could be exploited via domestic sale or export.
No wet gas was ever delivered by FRN, for reasons which were disputed and, in January 2013, P&ID sought to bring the GSPA to an end by accepting FRN’s alleged repudiatory breach. P&ID subsequently commenced arbitration against FRN for damages in accordance with the Nigerian Arbitration and Conciliation Act with the arbitration seated in London.
The circumstances of FRN’s challenge in the Commercial Court arose out of allegations that P&ID engaged in bribery and corruption before, at and after the time that the GSPA was entered into and during the arbitration itself. FRN made further claims that some of its lawyers at the time, including two leading counsel, were corrupted by P&ID.
Unknown to FRN, P&ID made several payments to an individual acting for FRN “to incentivse and reward [her] in connection with the entry of the GSPA.“[4] These payments continued through the arbitration which followed. In the words of Mr Justice Knowles, those payments were intended to “help supress from the Tribunal the truth that [the individual] had been bribed when the GSPA was entered into…’to keep her ‘on-side’, and to buy her silence“.[5]
Furthermore, during the proceedings, P&ID came into possession of documents, improperly obtained, which were confidential to FRN and subject to legal professional privilege. As Mr Justice Knowles concluded: “P&ID’s improper retention of Nigeria’s Internal Legal Documents also allowed it to monitor whether Nigeria had become aware of the fact that the Tribunal and Nigeria were being deceived.“[6]
Mr Justice Knowles further noted that P&ID’s original legal representatives, on receipt of these documents, would have appreciated their privileged nature regardless of their being unaware how they had come into P&ID’s hands. Although FRN had shared some internal documents with P&ID in the course of settlement discussions, Mr Justice Knowles rejected as untrue, oral evidence provided by members of P&ID’s original counsel team that they believed the documents to be legitimately obtained.[7] P&ID’s original legal representatives were also found to have had “very significant personal interests” in acting in the matter and stood to receive “life-changing sums of money” contingent upon P&ID prevailing in the arbitration.[8] The leading counsel originally instructed by P&ID was, incidentally, a nephew of P&ID’s co-founder and key witness in the arbitration.[9]
By a final award dated 17 July 2015, the Tribunal found that FRN committed a repudiatory breach of the GSPA, that the GSPA was terminated on P&ID accepting the repudiatory breach and that FRN was liable in damages. On 31 January 2017, the Tribunal published a further award dealing with quantum requiring FRN to pay P&ID USD 6.6 billion at an interest rate of seven percent, totalling USD 11 billion by the time the challenge went before the Commercial Court.
FRN applied for an extension of time to challenge the Arbitral award under sections 67 and 68(2) of the Act. FRN concurrently applied for relief from sanctions to put forward new evidence to repel enforcement of the awards, including information about P&ID’s number corrupt payments which came to light subsequent to the arbitration. In January 2020, an enforcement order pending the outcome of the hearing on FRN’s application was stayed.
On 4 September 2020, the High Court granted FRN an extension of time to bring challenges to the arbitral award. Challenges to an award under section 68(2)(g) must typically be brought within 28 days of the award, this being a significant deviation.
Obtained by fraud & substantial injustice
FRN established that the arbitration awards had been obtained by fraud and contrary to public policy (per 68(2)(g) of the Act) by reference to three occurrences:
- P&ID relied on witness evidence before the Tribunal that was material, but which it knew to be false. FRN raised a jurisdictional objection in the opening phases of the arbitration alleging that the GSPA was void under Nigeran law on matters unrelated to the substance of its section 68 challenge. The Tribunal found that it did have jurisdiction.[10] In the context of its jurisdictional objection before the Tribunal, P&ID served witness evidence stated to “explain how the GSPA came about” such that the Tribunal had jurisdiction over the matters in dispute. In the challenge, FRN argued that P&ID gave an implied representation via its factual evidence that the GSPA had been entered into in “wholly legitimate circumstances” when the reality was that it had been “won by paying bribes“. That fact was absent from P&ID’s witness evidence. Mr Justice Knowles found that the witness and the solicitor who drafted the statement had both engaged in “conduct [which] was dishonest by the standards of ordinary decent people.“[11] For example, it was heard that the drafting solicitor had asked P&ID for lists of documents which had come into P&ID’s possession ‘officially’ and ‘unofficially’ so that references to the latter could be avoided in written evidence;
- As noted above, it was also heard that P&ID made corrupt payments to a government employee to supress to FRN the fact that she had been paid when the GSPA came about; and
- P&ID improperly retained, and used for its own advantage, FRN’s privileged documents.
Section 68 compelled the court to consider whether the arbitral award caused a serious irregularity such that FRN would suffer from substantial injustice. The Court determined that what happened had been so substantially removed from what could reasonably have been expected from an arbitral process, that the arbitration was a “a shell that got nowhere near the truth.“[12]
Mr Justice Knowles had “no hesitation in concluding that Nigeria suffered substantial injustice” and concluded that “[FRN]‘s right to confidential access to legal advice was utterly compromised throughout all or most of the arbitration.” He rejected the argument put forward by P&ID that its obtaining of FRM’s documents did not affect the outcome in the awards, stating “[h]ere too I have no doubt had the Tribunal known, its approach would have been very different“.
Section 73 of the Arbitration Act 1996 and the “loss of right to object“
It was also considered whether FRN had lost the right to bring its challenge. Section 73 (to which Section 68 cross refers) provides that a party which takes part, or continues to take part, in arbitral proceedings without raising any objection either that (a) the tribunal lacks substantive jurisdiction or, more pertinently here, (b) there exist other irregularities affecting the tribunal or the proceedings, such objection may not be raised later before the tribunal or the courts unless the circumstances giving rise to an objection where unknown at the time and could not be known with reasonable diligence.
It was noted that a reasonable diligence requirement would not apply at common law or equity where it was a judgment to be set aside on grounds of fraud and, in the context of the requirement in the Act, it could not be argued that a party alleging fraud had erred by not uncovering it sooner.
Mr Justice Knowles held that it was not until after the arbitration had concluded that FRN began to acquire knowledge of bribery or that P&ID had its privileged documents, such that there was no loss of its right to object under Section 73. In any event, his judgment makes clear for the purposes of Section 73, ‘reasonable diligence’ is that which would have discovered the grounds for objection.
Conclusion and Key Takeaways
In this case, having “a tribunal of the greatest experience and expertise“[13] was insufficient to protect the integrity of arbitration and its place as a rigorous and just method of dispute resolution. The Tribunal “did what it did with what it had“[14] and, in the same vein, the English Court had also seen nothing of the truth when it encountered the arbitration on an earlier occasion in 2016.
In concluding his judgment, Mr Justice Knowles’ final comments are reserved for the wider arbitration community and he makes a number observations which should – as he intends – encourage debate among practitioners, but also those courts with responsibility to oversee and supervise arbitration. Without further reflection, Mr Justice Knowles warns that it is entirely possible a case such as FRN v P&ID could happen again, and not reach the court. With that in mind, he leaves us with the following four observations:
- the imbalance in the contributions of the parties that enabled the GSPA to be in the form it was in this case was the result of bribery and corruption but, it happens in other cases simply where “the experience, expertise or resources are grossly unequal.” Mr Justice Knowles noted the pro bono work by those representing state parties that may face challenges of resource as important in this regard. It was further noted that FRN concluded other contracts with different parties. In those contracts illegitimate advantages had not been extracted and this underscored the importance of professional standards and ethics on the part of those drafting such contract;
- it was the disclosure process enabled by the court that allowed documents to come to light which revealed the truth about the arbitral award;
- this is an instance where legal representatives did not carry out their duties to the expected standards, experts failed to do their work properly, and political and civil servants failed to ensure that FRN was accurately represented in the arbitration. Parties rely on Tribunals to do their job and ensure that evidence is properly evaluated. Mr Justice Knowles poses the question of whether Tribunals can be “more direct and interventionist” which it becomes clear parties are not being properly represented; and
- arbitration lacks the public press and scrutiny provided by the ‘open court principle’. Unlike court processes, where state parties are concerned, it seems unsatisfactory for public accountability to rely solely on arbitrator scrutiny.
Mr Justice Knowles notes in his judgment, citing earlier authority, that “fraud is a thing apart, it unravels all“. FRN v P&ID is a case which demonstrates that, despite the English Courts’ non-interventionist stance on arbitration, arbitral awards are no different in this regard. However, that this challenge was successful should not suggest any waning of the aforementioned desire by the Courts to uphold arbitral awards or the Court’s associated non-interventionist principles. In the words of Mr Justice Knowles, this is an instance in which a party obtained awards “only after and by practising the most severe abuses of the arbitral process“[15] and thus, in this case, policy weighed against allowing the awards to stand.
[1] See further: https://www.globalarbitrationnews.com/iayearbook2021-22/ .
[2] [2023] EWHC 2638 (Comm)
[3] a first award on liability, a subsequent final award dealing with quantum and a separate award on jurisdiction.
[4] Knowles J at [170].
[5] Knowles J at [404].
[6] Knowles J at [217].
[7] Knowles J at [214-215].
[8] Knowles J at [207]
[9] Knowles J at [206].
[10] Knowles J at [266].
[11] Knowles J at [254].
[12] Knowles J at [580].
[13] Knowles J at [583].
[14] Knowles J at [580].
[15] Knowles J at [516].
