P&ID Scandal: How Nigeria secured major victory in UK court

The Nigerian government has secured a judgement of a British court to suspend an unfavourable ruling over the P&ID scandal.

A Commercial Court in the United Kingdom, Friday, granted Nigeria’s appeal for a stay of execution of the award of $8.9 billion (about N3.2 trillion) in favour of P&ID, a controversial British firm that secured a gas contract in Nigeria.

On Friday, the Royal Courts of Justice Strand, London, WC2A 2LL presided over by Justice Sir Ross Cranston said following a review of written submissions by the Nigerian government after the arbitral award, which contained “new evidence” concerning the matter in dispute, the court decided to grant “Nigeria’s applications for an extension of time and relief from sanctions.”

The latest ruling is, however, a temporary reprieve for Nigeria, as it merely provides an opportunity for the court to review the new evidence of miscarriage of justice claimed by the Nigerian government and does not amount to a repeal of the award to Process & Industrial Development Limited (P&ID).

The UK Business & Property Courts (the Commercial Court), presided by Justice Butcher, had approved that P&ID should enforce a March 20, 2013 award against Nigeria by a District Circuit Court in Washington DC.

The initial award of $6.6 billion as damages in favour of P&ID followed accusations by the British engineering firm of an alleged breach by the Nigerian government of a 2010 gas contract agreement.

The damages calculated as the present value of 20-year income, minus certain capital and operating costs incurred from building and running the refining facility, was granted under the rules of the Arbitration Act 1996 (England and Wales) and the Nigerian Arbitration and Conciliation Act (CAP A18 LFN 2004).

Following Nigeria’s refusal to enter an appeal for over five years, the initial award accumulated to about $8.9billion, including an additional $2.3 billion in accumulated interest at 7 per cent rate per annum.

P&ID had commenced moves to enforce the award by targeting Nigerian assets abroad, a development most analysts said portended grave danger on Nigeria’s tottering economy.

In resisting P&ID’s attempt, the Nigerian government filed an appeal against the judgment of the English Court for a stay of execution, apart from other efforts in the courts of the United States of America to protect Nigeria’s interests.

The Office of the Attorney General of the Federation described the award as “clearly unreasonable and manifestly excessive and exorbitant, punitive and unjustifiable.”

The appeal court presided by Justice Christopher Cooper had denied Nigeria’s application on the ground that it was belated, as it was filed outside the 30 days period within which copies of the summons and complaint should be served on a foreign state.

The court however granted a part of the country’s motion that Nigeria was not properly served the process documents by addressing them to the “head of the ministry of foreign affairs” as is the practice under 28 U.S. Code section 1608(a)(3).

The code stipulates the order of service or delivery of a copy of the summons and complaint in U.S. courts to a foreign state or political subdivision of a foreign state.

The Nigerian government had argued in its appeal that the affirmation of the award by the tribunal on March 2018 to its January 2017 ruling was not enforceable as it was a “default entry by the clerk” rather than a “default judgement.”

The Attorney-General of the Federation, Abubakar Malami, told PREMIUM TIMES the arbitration court lacked the constitutional powers to issue such an order or award against a sovereign state like Nigeria.

Mr Malami said there were certain conditions that must be attained before the U.S. court could deliver such a judgement against Nigeria.

Under the Foreign Sovereign Immunities Act (FSIA), the AGF said, a default judgement cannot be entered against a foreign state like Nigeria, unless the presiding judge determines so after the petitioner/claimant must have established its entitlement to a default judgment.

Based on the presumption of sovereign immunity, he said the US District Court was still under obligation, despite default by a Foreign State, to determine whether the Foreign State was immune from the jurisdiction of the US Court under FSIA, or whether the case before it fell within one of the recognised exceptions.

He noted that even where the court had determined it has jurisdiction, a default judgment would not be granted automatically, or as a routine matter to be handled by a court clerk, as this could only be done after a formal trial.

Despite Nigeria’s position, the three-member tribunal led by the presiding arbitrator, Lord Hoffman, said its final award to P&ID against Nigeria was based on the laws of the Federal Republic of Nigeria.

Lord Hoffman said P&ID and Nigeria had agreed prior to the contract that in the event of any dispute, each may issue a notice of arbitration under the rules of the Arbitration Act 1996 (England and Wales) and the Nigerian Arbitration and Conciliation Act (Cap A18 LFN 2004.

Under the Act, the parties agreed that any “arbitration award shall be final and binding upon the parties.”

P&ID’s argument was that by virtue of the terms of agreement it signed, Nigeria’s agreement to be bound by the outcome of any arbitration meant it waived its right to immunity as a sovereign nation.

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In previous reports, PREMIUM TIMES recalled that 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 Nigerian 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.

In August 2012, P&ID served the Nigerian government a Request for Arbitration.

However, Nigeria 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 Nigeria’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.

Consequently, 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. His view was, however, a minority view thus leading to the $6.6 billion judgement.