The Nigerian government said on Friday that it is considering all available options to resist the decision of a British court to grant enforcement right to an $8.9billion (about N3.2 trillion) arbitral award against the country.
The United Kingdom, Business & Property Courts (the Commercial Court), presided by Justice Butcher granted P&ID’s enforcement request to enforce a March 20, 2013 award against Nigeria by a District Circuit Court in Washington DC.
Friday’s award converts the arbitration award into a domestic UK judgment against Nigeria.
The initial award of $6.6 billion as damages was in favour of a British engineering firm, Process & Industrial Development Limited (P&ID), which accused the Nigerian government of breaching a 2010 gas contract agreement.
The tribunal said the damages were calculated as the present value of 20-year income, minus certain capital and operating costs incurred from building and running the refining facility.
The award was handed by a tribunal constituted under the rules of the Arbitration Act 1996 (England and Wales) and the Nigerian Arbitration and Conciliation Act (CAP A18 LFN 2004).
Despite the award against it, Nigeria refused to enter an appeal for over five years. The initial award rose to about $8.9billion including an additional $2.3 billion in accumulated interest at 7 per cent rate per annum.
That latest development may portend a major blow to Nigeria, whose economy is still struggling to maintain stability several months after managing to pull out of one of the worst recessions in its history.
P&ID has already signified its intention to target Nigerian assets in order to enforce the judgement.
“We are pleased that the Court has rejected Nigeria’s objections both to the arbitration process and to the amount of the award and that it will grant permission to P&ID to begin enforcement of the award in the United Kingdom.
“The Court has ruled decisively in P&ID’s favour and has comprehensively rejected Nigeria’s efforts to avoid payment of this award of over $9.6 Billion. P&ID is committed to vigorously enforcing its rights, and we intend to begin the process of seizing Nigerian assets in order to satisfy this award as soon as possible,” Andrew Stafford Q.C. of Kobre & Kim said on behalf of the company in a statement sent to PREMIUM TIMES.
Nigeria vows to resist judgment
The Permanent Secretary and Solicitor General of the Federation, Dayo Apata, said in a statement on Friday in Abuja that the government will vigorously defend Nigeria’s rights to protect its people’s assets around the world against the enforcement of the judgment.
“Nigeria intends to strongly avail itself of all defences customarily afforded to sovereign states under the United Kingdom Sovereign Immunity Act at any such enforcement actions,” Mr Akpata said.
He said Nigeria decided to move against the enforcement of the award based on experts report, which analysed the damages awarded P&ID as being “clearly unreasonable and manifestly excessive and exorbitant.”
Mr Apata said the courts “went far beyond any legitimate protection of the commercial interests to overcompensate P&ID on a, frankly, gargantuan scale, and impose[d] a punitive award on Nigeria”.
Describing the ruling as “completely wrong and obviously unjustifiable,” Mr Apata said these informed the Nigerian government’s decision to take all available steps to resist enforcement before the courts of the United Kingdom.
He said government’s counsel has been instructed to pursue an appeal on the judgment of the English Court to secure a stay of execution, apart from other efforts in the courts of the United States of America to protect Nigeria’s interests.
“Nigeria is making vigorous efforts to defend its interest in this matter and would not relent in exploring every viable option in doing so,” he said.
How It Happened
On January 11, 2010, P&ID signed a gas supply and processing agreement with the Ministry of Petroleum Resources on behalf of the Nigerian government.
Under the terms of the agreement, P&ID was to build and operate an Accelerated Gas Development project to be located at Adiabo in Odukpani Local Government Area of Cross River State.
The federal government was to source for natural gas from oil mining leases (OMLs) 123 and 67 operated by Addax Petroleum and supply to P&ID to refine into fuel suitable for power generation in the country.
Nigeria was expected to supply an initial volume of about 150 million cubic feet of gas per day. Eventually, it was to be ramped up to about 400 million cubic feet per day during the 20-year period.
However, P&ID alleged that after signing the agreement, the Nigerian government reneged on its obligation after negotiations were opened with the Cross River State government for allocation of land for the project.
P&ID said the failure to construct the pipeline system to supply the gas frustrated the construction of the gas project, thereby depriving it of the potential benefits from over 20 years’ worth of gas supplies.
The company said attempts to settle out-of-court with the Nigerian government failed.
P&ID serves notice of arbitration
In August 2012, P&ID served the Nigerian government a Request for Arbitration.
The federal government argued before the tribunal that “the failure of P&ID to acquire the site and build Gas Processing Facilities was a fundamental breach and that no gas could be delivered until this has been done.”
But the tribunal ruled that the Nigerian government’s obligations under Article 6B were not conditional upon P&ID having constructed the gas processing facilities.
In July 2015, the arbitral tribunal found that Nigeria had repudiated its obligations under the GSPA and that P&ID had been entitled to accept the repudiation and claim damages for breach.
On December 23, 2015, the government asked for the award to be set aside. That was after earlier committing that the arbitration decision shall be final and binding upon parties.
So, on February 10, 2016, the application was dismissed, paving way for the hearing on July 22 to 24, 2016 to determine the damages.
In the tribunal’s opinion, the damage suffered by P&ID was the loss of net income the company would have received if the government kept its side of the contract.
Two members of the three-man tribunal, Lord Hoffmann and Anthony Evans, held that P&ID’s expenditure and income should have been about $6.597 billion if the GSPA was duly performed by government.
Both officials said the award should be paid together with interest at the rate of 7 per cent from March 20, 2013.
The other member, who is Nigeria’s former Attorney-General and Minister of Justice, Bayo Ojo, in his minority ruling said although P&ID was entitled to compensation for the breach, its damages could not have been more than three years from the date of the alleged breach.
Apart from being a new company incorporated in 2006, Mr Ojo noted the project could not have started yielding benefits earlier than 2015.
On January 31, 2017, Mr Ojo said the highest amount payable as damages to P&ID should not be more than $250 million.
However, considering that the final award remained unsettled since 2013, it attracted an additional $2.3 billion in uncollected interest as of March 2018.
Nigeria challenged ruling
Although the federal government challenged the award, P&ID said Nigeria was bound by a treaty to pay up, having waived its right to immunity as a sovereign nation when it signed the agreement.
Following its failure to stop the arbitration, PREMIUM TIMES learnt the federal government opened initial negotiations for the settlement of the award. But, the effort was unsuccessful.
In July 2018, the Nigerian government faulted a U.S. court’s judgment award in favour of P&ID.
The Solicitor-General of the Federation, Dayo Apata, described the court’s decision as a “default entry made by the clerk of the United States’ District court” after the Nigerian government failed to defend itself from an allegation by the P&ID.
Mr Apata, however, stated that the ‘default entry’ was not a judgement, as the court lacked constitutional powers to institute such an order against a sovereign state like Nigeria.
He said the federal government, through its foreign solicitors, Messrs. Curtis, Mallet-Prevost, Colt & Mosle LLP, took steps to set aside the enforcement of the court’s proceedings.
In March 2018, P&ID initiated a process for the recognition and enforcement of the award against Nigeria in both UK and U.S. courts.
But the Nigerian government argued the confirmation and enforcement of a foreign arbitral award against a foreign state would violate the Foreign Sovereign Immunities Act.
According to the government, the award was also against the Federal Arbitration Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”.
On June 5, 2018, P&ID moved to obtain a clerk’s entry of default against Nigeria. But the federal government challenged the District Court’s jurisdiction in the U.S., demanding the dismissal of P&ID’s petition.
In July 2018, the Nigerian government again asked the court to set aside the award.
The court presided by Justice Christopher Cooper described Nigeria’s request for the dismissal of P&ID’s petition as belated.
But, on October 9, 2018, the court proceeded to grant Nigeria’s application filed by the former Attorney General of the Federation, Abubakar Malami, for a stay of execution of ruling pending a determination of its appeal.
On its part, P&ID also filed motions asking the court to dismiss Nigeria’s appeal as frivolous and allow proceedings in the District Court to continue pending determination of the appeal at the Court of Appeal.
Mr Malami said the US District Court on November 1, 2018, upheld Nigeria’s request and rejected P & ID’s attempt to lift the stay of proceedings.
At the hearing held on December 21, 2018, in the UK, P&ID sought to obtain a default judgement against Nigeria on account of its late filing of an acknowledgement of service outside the period prescribed by the Commercial Court.
But the Court of Appeal on February 15 this year, dismissed P&ID’s motion and summarily affirmed the scheduling order of the US District Court.
The ruling gave Nigeria an extension of time to file its arguments on the merits at a subsequent hearing re-listed for hearing on May 21, 2019.
When the matter came up for final ruling on Friday, Justice Butcher said the tribunal had intended to award only compensatory damages, and not a penalty or punitive damages in the sums awarded.
He said: “The damage suffered by P&ID is the loss of the net income it would have received if it had been supplied with wet gas in accordance with the contract and had been able to extract and sell the natural gas liquids.”
The Tribunal rejected an argument by the Nigerian government that P&ID would not have performed the contract.
“The Final Award, consistently with my earlier conclusions, was one given in an arbitration whose seat was England. It could, accordingly, have been the subject of an application under s. 68 Arbitration Act 1996 in relation to serious irregularity. No such application was made and the Final Award has, plainly, not been set aside or remitted,” the judge said.