The $6bn judgment pitting Nigeria against Irish businessmen
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 southeast 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 $6.6 billion. With interest, the award has ballooned to
almost $10 billion, 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.”
Arbitration Courts
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.
“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-chairman 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 $50 billion awarded to
the former owners of Yukos, a Russian oil group expropriated by the state. 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 $65 million 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 British and Italian courts of having awarded himself
the block when he was minister, and then selling it in an allegedly corrupt
$1.3 billion 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.
Electrifying Nigeria
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 $2.3 million 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 $40 million 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 – $6.6 billion – 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 London 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.
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 $18 billion.
Despite the convictions, Chevron was still forced to defend
itself against the $18 billion 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 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.”
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