The report that a commercial court in the UK has ruled that Nigeria must pay a UK firm, Process and Industrial Development Limited (P & ID) a sum of $9.6 billion or have its assets in the UK to the tune of that amount forfeited has generated more than a little interest. For a country with a foreign reserve of $45 billion and sovereign debt profile of over $80 billion that judgment debt is quite a lot, potentially capable of rendering Nigeria even more technically insolvent.
Dayo Apata, Permanent Secretary of the Ministry of Justice and Solicitor-General of the Federation has told the public that Nigeria will appeal the judgement and apply for a stay of execution to forestall the enforcement order that has been granted. Whereas this may be a logical step to take, even if it may achieve nothing in the long run other than putting more money in the pockets of counsel, there are specific issues that have been thrown up by Nigeria’s (mis)management of the case so far and the ruling of the UK court.
The first issue is Nigeria’s habitual disregard for the sanctity of contracts and terms of agreement, and the failure of Nigeria’s representatives in many cases to enter into agreements that are in the best interest of the country. The facts of the case in Process & Industrial Development vs. Federal Republic of Nigeria (2019) EWHC2241 (Comm), by way of summary are as follows:
In January 2010, the Federal Republic of Nigeria (FRN), through its Ministry of Petroleum Resources entered into a Gas Supply and Processing Agreement (GSPA) with P&ID.
Under the terms of the agreement, Nigeria “was to supply natural gas (wet gas) at no cost to P&ID via a government pipeline to the site of P&ID’s production facility.” P&ID was required to construct and operate the facility, process the wet gas and return to the government of Nigeria, lean gas to be used for power generation at no cost to the government of Nigeria. P&ID was entitled to other derivatives stripped from the wet gas. The GSPA had a tenure of 20 years from the date of first supply of wet gas.
Clause 20 of the GSPA provided for (a) the agreement to be construed in accordance with the laws of Nigeria; (b) in the event of a dispute over the interpretation or performance of the Agreement, which cannot be resolved amicably, either party will serve on the other a notice of arbitration, (c) the Arbitration award shall be final and binding upon the parties and (d) “the venue of the arbitration shall be London, England or otherwise as agreed by the Parties.”
Two years later, a dispute arose between the P&ID and the Nigerian Government, and as this could not be settled amicably, the former served a notice of arbitration on the Nigerian government on the grounds that Nigeria had failed to make Wet Gas available in accordance with the GSPA.
The matter went before an Arbitration Tribunal, under the Rules of the Nigerian Arbitration and Conciliation Act 2004, with London, England as place of Arbitration. After affirming its jurisdiction in the matter, the Tribunal began its procedural hearing to determine whether or not there was any repudiatory breach of contract.
At this point, there was an attempt by the Ministry of Petroleum to reach a settlement agreement with P&ID to the tune of $850 million, payable in instalments.
This was submitted for Presidential approval a week to President Jonathan’s departure from office. It would have amounted to tying the hands of the incoming government to grant the approval for the payment of that sum.
Meanwhile, the Arbitration Tribunal had bifurcated the case and by July 2015, it affirmed that indeed Nigeria had failed to perform its obligations under the GSPA and then unanimously decided that P&ID was entitled to damages with interest. It took the new Nigerian government more than 4 months to respond.
The excuse given for the delay, by Ms. Folakemi Adelore, witness for Nigeria, was that there had been a change of administration in Nigeria and that Ministers, including the Attorney General had only just been appointed. Nigeria asked for an extension of time to act on the outcome of the Arbitration Tribunal. The Commercial court led by Phillips J. dismissed that appeal and the explanation for the delay at the time.
Unsuccessful in having its way in England, Nigeria took up the matter at the Lagos Judicial Division of the Federal High Court of Nigeria, seeking essentially the same reliefs that were rejected by Phillips J. When notified of the proceedings in the Lagos High Court, P&ID dismissed the proceedings as “abusive and as a deeply unattractive attempt to forum shop”. There was a back-and-forth exchange of emails between the parties involved and the Tribunal over the meaning of venue or seat of arbitration.
The Tribunal would eventually rule that London is the seat of arbitration “in the juridical sense”. The Nigerian government then went back to the Lagos High Court to set aside the Tribunal’s Procedural Order No. 12 and got favourable judgment. The Arbitration proceedings in London continued nonetheless to determine the quantum of damages and on January 31, 2017, the Tribunal issued its Final Award.
The Tribunal insisted that P&ID would have played its own part in the contract if Nigeria had not repudiated its own obligations. It therefore ruled in favour of P&ID and ordered Nigeria to pay US$6.597,000, 000 being net present value of the profits which would have been earned by the P&ID. The Federal Government was also asked to pay interest on the amount at 7% per annum from March 2013. This final ruling was given in 2017. The Nigerian Government refused to pay and also failed to appeal the ruling! Why?
It may be routine conduct in Nigeria to ignore court orders, and assume that nothing will happen but things don’t work like that in the international domain. In March 2018, P&ID went to the Commercial Court in England to institute proceedings for the enforcement of the Final Award as declared by the Arbitration Tribunal.
The Nigerian Government again did not respond in time. It waited till October 2018 before it finally acknowledged service and applied for relief for sanctions. The matter would finally be heard by Justice Christopher Butcher.
It should be noted that on all the issues raised before the court of Butcher J. viz: the seat of arbitration and the order of the High Court of Lagos, issue estoppel, the conclusions of Procedural Order No. 12, (that is the ruling of the Arbitration Tribunal), public policy, pre-award interest and whether or not, the Final Award in favour of P&ID was excessive and punitive, the Court found in favour of P&ID on all the issues. Justice Butcher’s ruling raises cogent and recondite points of law, in a learned and rigorous manner; but in one word, he butchered Nigeria. The manner in which he did so, I intend to indicate shortly.
For now, what is clear to me is the reckless manner in which Nigerian officials often enter into agreements, on behalf of the country, without paying attention to the small print of the agreement and thinking through the feasibility of the agreement entered into. The net result is that the country incurs liabilities that are detrimental to corporate interest.
On the face of it, the GSPA with P&ID would have been beneficial to Nigeria, particularly in terms of the constructive use of associated gas and the supply of lean gas to the national electricity grid for both industrial and domestic use. The GSPA was signed by the Ministry of Petroleum on behalf of Nigeria: was the Ministry not in a position to know the volume of wet gas that would be required to fulfil Nigeria’s obligations? What happened to the proposed pipeline? It would appear as if Nigeria signed the agreement in 2010 and just went to sleep. Where international contracts are involved, and we breach the terms of agreement, we end up projecting the country as an unfit and risky destination for investment.
Even the private sector has been accused of failing to respect contractual agreements, the most recent example being the case of Nigerian airline operators and Boeing which has more or less blacklisted Nigerian airlines from leasing its aircraft. As it is with the Federal Government, so it is with the states. The Lagos Metro line project conceived by the Lateef Jakande administration in 1983 could have solved the perennial mass transit crisis in Lagos but it was soon politicized. When the Buhari military regime came to power, the project was eventually cancelled in 1985, without regard for the terms of the contract. The foreign contractor went to court and Nigeria had to pay a penalty of more than $78 million. The contractor was compensated for doing nothing!
Another issue is the lack of diligent prosecution of cases in which Nigeria is involved by those whose duty it is to do so. I assume that this is due to our tendency to either politicise everything or focus more on personal interests, or failure on the part of either representing counsel or the Attorney General’s office. As stated, it took Nigeria in this case about five months to respond to the initial ruling of the Arbitration Tribunal in London. The excuse that Nigeria was busy with elections and that new Ministers were not in place until November 2015 naturally appeared strange and laughable. When final ruling was given, Nigeria also did nothing. It had to wait until P&ID sought enforcement.
Butcher, J. in his August 16, 2019 ruling made heavy weather out of several acts of omission on the part of the Nigerian authorities. He observed in one instance, that “…the FRN had remedies for any procedural unfairness, but it did not utilise them”. Nigeria could also have objected to Procedural Order No. 12 or question the Final Award. In the words of Butcher J., “it did neither and the time for doing so is long past.” This is a serious indictment (see paragraphs 64 -66 of the ruling). The energy that should have been devoted to the Arbitration in London was diverted towards obsession with “seat of arbitration” and getting a favourable judgment from the Lagos High Court which in Nigeria’s contention was the “supervisory court”, a point about “sovereignty” both the Tribunal and the Court dismissed.
Nigeria failed to pursue relevant questions: Questions for example about the quantum of damages. Or the tax that would have accrued to Nigeria through P&ID. Besides, what is the profit value of Nigeria’s 10% equity? And why were questions not raised about in-door management rules? It is also curious that Nigeria failed to insist on something quite obvious: the competence and the failure of P&ID to build the facility stated in the GSPA. Equity aids the vigilant, not the indolent. Could the Nigerian team have been making needless mistakes in order to help the other party? In a country that is perpetually in search of patriots, particularly in official corridors, this is a relevant question.
The Commercial Court in London has held that the Final Award by the Tribunal in favour of P&ID is not punitive or excessive, rather it is compensation for damages suffered. The Court gave an order enforcing the Final Award. There is no guarantee that Nigeria will succeed with either its appeal or its request for stay of execution. Whatever happens, the (mis)handling of this case requires introspection and steps to be taken to ensure that this kind of embarrassment does not occur again, hoping that there are no such similar cases in other jurisdictions or in hibernation which may soon come to the knowledge of the Nigerian public. The success of P&ID may well embolden other parties with similar issues with Nigeria to go to court.
Our case is not helped either by the politicization of the matter with the on-going trading of blames. It may be necessary for the National Assembly when it returns from its recess to conduct an inquiry into how Nigeria, with all the concerns about revenue and growth, is now faced with a judgment debt of $9.6 billion, with daily interest accruing. Who are the state officials and their collaborators if there are any, who failed to ensure due diligence, both at the level of the contract and the management of the dispute with Process and Industrial Development Ltd? Why was wet gas not made available? Did the Attorney General’s office even vet the GSPA at all? From all indications, the dispute could have been settled out of court. Why did that option fail? $9.6 billion is about 20% of the country’s external reserves and 2.5% of GDP. Every single person, dead or alive, lawyer or state official, who has a hand in this mess must be called out.