In The Federal Republic of Nigeria v Process & Industrial Developments Limited  EWHC 2638 (Comm), a case before England’s Commercial Court, Nigeria successfully challenged arbitral awards under s.68 of England’s Arbitration Act 1996 (the Act) on the basis that they had been obtained by fraud, contrary to public policy. S.68 of the Act is drafted in similar terms to s.4 (2)(g) of Schedule 2 of Hong Kong’s Arbitration Ordinance, Cap 609 (AO) and provides for challenges to arbitral awards for serious irregularity, including where the award is obtained by fraud or the award or way it was procured is contrary to public policy.
The parties had entered into a “Gas Supply and Processing Agreement for Accelerated Gas Development” (GSPA), under which Nigeria was to supply “wet” gas to Gas Processing Facilities (GPFs) constructed by Process & Industrial Developments Ltd (PIDL). PIDL was to strip the wet gas into “lean” gas, to be delivered to Nigeria to be used for power generation. A dispute arose and PIDL brought arbitration proceedings against Nigeria. The arbitral tribunal (Lord Hoffmann, Sir Anthony Evans and Chief Bayo Ojo SAN) found that that Nigeria had committed a repudiatory breach of the GSPA, that the GSPA was terminated on PIDL accepting that repudiatory breach, and that Nigeria was liable in damages. Under its further award on quantum, Nigeria was ordered to pay PIDL US$6.6 billion.
Section 68 of the Arbitration Act
Before England’s Commercial Court, Nigeria challenged the awards on liability and quantum, under s.68 of the Act, alleging bribery and corruption on PIDL’s part, before, at and after the parties had entered into the GSPA.
S.68 of the Act provides: “(1) A party to arbitral proceedings may… apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award… (2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant – … (g) the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy.”
In relation to s.68, the court said:
- S.68 is concerned with serious irregularity affecting the tribunal, the arbitral proceedings or the award, with subsection (2) listing nine types of irregularity, the relevant one in this case, being (g), which is concerned with the award and the way in which it was procured.
- For irregularity type (g), it is the award that must be “obtained by fraud”; it is the award or the way in which the award is procured that must be “contrary to public policy”. The focus is not on the claim on which the award is based or the cause of action on which the claim is based.
- The s.68 jurisdiction requires a close focus on the parties’ conduct in the arbitration and the process by which the award was obtained.
- The objection under consideration in s.68(2)(g), that of “the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy”, is of fundamental character to the arbitration process because it goes to the integrity of that process.
- An award obtained by fraud or contrary to public policy (or procured in a way that was contrary to public policy) and which has caused or will cause substantial injustice is not what the parties agreed to when they agreed on arbitration.
- Unless the right to object is lost for reasons of finality (see s.73 of the Act), and subject to the procedural restrictions in s.70(2) and (3), there is no sanctuary. This architecture meets the requirements of justice.
- A high threshold is applicable to s.68: Fraud (that is dishonest, reprehensible or unconscionable conduct) must be distinctly pleaded and proved, to the heightened burden of proof.
- As to public policy, it has to be shown that there is some illegality or that the enforcement of the award would be clearly injurious to the public good or, possibly, that enforcement would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state are exercised.
“Serious” irregularity and “substantial injustice” under s.68
The court said that s.68(2)(g) concerns not just the award being obtained by fraud or being contrary to public policy, but also “the way in which [the award] was procured being contrary to public policy”. There could be no question, the court said, that fraud and conduct contrary to public policy are serious in themselves. However, when s.68 refers to seriousness, its focus is on the consequences, and specifically the consequences for justice. It asks whether substantial injustice has been or will be caused to the party applying to the court. There will be substantial injustice, the court said, where it is established that, had the irregularity not occurred, the outcome of the arbitration might well have been different. The court noted that the test of serious irregularity has been recognised as imposing a “high threshold” or “high hurdle” and the focus is on due process, not the correctness of the decision reached.
The court found that PIDL had paid bribes to a Grace Taiga, former Legal Director at the Ministry of Petroleum Resources, and lawyer involved in the drafting and negotiation of the GSPA on Nigeria’s behalf. The court found that Grace Taiga certainly had a role in bringing about the GSPA and that payments to her and members of her family continued through the arbitration at the instigation of PIDL and also after the arbitral awards, all of which were deliberately concealed from Nigeria.
The court concluded that there was no question that the arbitration would have been completely different, and in ways strongly favourable to Nigeria, had the fact of bribery of Grace Taiga when the GSPA was being made been before the tribunal. It would have brought in the issue whether the GSPA was procured by fraud, and as a result voidable. Discovery of the concealment would have completely altered the tribunal’s approach to the evidence.
The court concluded that the awards were obtained by fraud and the awards were, and the way in which they were procured, contrary to public policy and that Nigeria had suffered substantial injustice within the meaning of s.68 the Act.
Under s.68(3) of the Act, where there is shown to be serious irregularity affecting the tribunal, proceedings or the award, the court has three options, namely (i) to remit the whole or part of the award to the tribunal to reconsider; (ii) set the whole or part of the award aside; or (iii) declare the whole award or part of it to be of no effect. Here, the court acceded to a request by PIDL’s counsel to postpone the decision as to which order to make until after the parties had had an opportunity to present further arguments in that regard.
The court, by way of endnote to the judgment, said it would be referring a copy of it to the Bar Standards Board, in the case of Mr Trevor Burke KC (Counsel representing PIDL in the arbitration), and to both the Solicitors Regulation Authority and Bar Standards Board in the case of Mr Seamus Andrew (the solicitor representing PIDL in the arbitration), as it found that in the course of the arbitration, PIDL had been provided with many of Nigeria’s internal legal documents, which were protected by legal professional privilege and that Mr Burke and Mr Andrew were amongst those who received them and knew that PIDL and they were not entitled to see them. The court remarked that their decision not to put a stop to it, at least by informing Nigeria or immediately returning the documents they knew were received, was indefensible. The court referred to their significant personal interests in PIDL being successful in the arbitration – up to £850 million in the case of Mr Burke KC and up to £3 billion in the case of Mr Andrew.
The facts of this case which led to the successful challenge of the arbitral award are extraordinary and attracted a lot of public attention. We will keep readers updated of any developments in the case.
For further information, please contact:
Joseph Chung, Partner, Deacons