Nigeria v P&ID: Caution Against An Arbitral Tribunal’s Non-Interventionist Approach To Arbitration? – By PAUL STOTHARD AND OLIVIA FOX
In an extraordinary judgment from the English High Court on 23 October 2023, Nigeria successfully challenged a US$11 billion arbitral award under Section 68 of the Arbitration Act 1996 (the Act) on the basis that the award was obtained by fraud and conduct contrary to public policy, including bribery of a witness, improper retention of privileged documents and perjury by a key witness.
The Hon. Mr Justice Robin Knowles CBE appeared to question the integrity of arbitration itself, observing that there were risks associated with the process (particularly in cases of significant public money), including vulnerability to fraud and a lack of transparency. Mr. Justice Knowles noted that in this case “the Arbitration was a shell that got nowhere near the truth” and expressed hope that the circumstances of the case would provoke debate and reflection among the arbitration community.
Whilst the circumstances of fraud leading to the Nigeria v P&ID judgment were probably sui generis, the judgment should give pause. In particular, the obiter comments made by Mr. Justice Knowles about Nigeria’s representation during the arbitration and the tribunal’s role in managing the arbitration process should be of concern to all practitioners. Where London is the seat of the arbitration, the tribunal’s general duty under Section 33 of the Act can give rise to a tension between the duty to act fairly and impartially in giving each party the opportunity to put its case and the duty to adopt procedures suitable to the circumstances of the case (avoiding unnecessary delay or expense in the arbitration process). These are tensions that can arise in commercial and investor-state arbitrations alike.
Brief background
Process & Industrial Developments Ltd (P&ID) and the Nigerian Ministry of Petroleum Resources signed a 20-year gas supply and processing agreement (GSPA) in 2010. P&ID issued an arbitration against Nigeria, accusing Nigeria of failure to perform its obligations under the GSPA.
In January 2017, the tribunal rendered a final award against Nigeria, finding it liable to pay damages of US$6.6 billion. By the time the High Court rendered its judgment in October 2023, the award had a value exceeding US$11 billion, including interest.
Nigeria first attempted to set aside the partial award on liability before the English courts in 2016 but was unsuccessful. P&ID began enforcement proceedings of the final award in 2019.
Following successful actions for discovery against P&ID in various courts internationally, in December 2019, Nigeria applied to set aside the final award and to challenge enforcement based on new evidence that the GSPA itself and the award had been procured by fraud. In 2020, Nigeria obtained an ‘unprecedented’ extension of time from the English court under Section 70(3) of the Act to apply to set aside the award. Sir Ross Cranston decided that there was a ‘strong prima facie case’ of fraud and that Nigeria had not made any deliberate decision not to investigate the fraud.
Observations in respect of the arbitral proceedings
It was plain that Nigeria had been inadequately represented in the arbitration. This gave rise to the question of what, if anything, the tribunal should have done when they realized this. Mr. Justice Knowles noted that the tribunal was entitled to rely on the parties’ legal representatives to take points that their clients wanted taken and to manage the arbitration firmly in response to delay by Nigeria and failure by Nigeria’s legal counsel properly to engage during the arbitration process.
However, Mr. Justice Knowles questioned whether the tribunal could and should have been more interventionalist when confronted with red flags associated with Nigeria’s legal representation during the arbitral proceedings, including Nigeria’s witnesses not having been shown core witness evidence from P&ID; and that Nigeria’s counsel failing to understand either basic questions that the tribunal put to him or key matters that should have been put to P&ID’s workers skilled in quantum in cross-examination.
The result of these shortcomings on the legitimacy of the arbitral process, in Mr Justice Knowles’ view, was that the “Tribunal did not have the assistance that it was entitled to expect, and which makes the arbitration process work. And Nigeria did not, in the event, properly consider, select and attempt admittedly difficult legal and factual arguments that the circumstances likely required. Even without the dishonest behaviour of P&ID, Nigeria was compromised.”
Mr Justice Knowles acknowledged that the tribunal took certain measures in the arbitration to address Nigeria’s inaction, including applying pressure and attempting to encourage proper engagement. However, the court found that there had not been a ‘fair fight’ between the two parties throughout the arbitration and that the tribunal’s approach was ‘very traditional’.
The balancing act under Section 33 of the AA 1996
The Act contains mandatory provisions in relation to certain core features of arbitration seated in the jurisdiction. Section 33 prescribes the general duty of the tribunal to act fairly and impartially between the parties and requires that the tribunal give each party a reasonable opportunity to make his case and deal with that of his opponent. Section 1(a) also states that “the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense.”
The Court decided that the award against Nigeria should be set aside because it was tainted with corruption, but it left open the question of whether Nigeria might also have succeeded in challenging the award on the basis that there has not been (as the judge put it) a ‘fair fight’ between the parties to the arbitration. The judge was critical of the tribunal’s failure to intervene, so Nigeria’s case was properly put. Could the award also have been challenged based on a failure by the tribunal in this case to satisfy its duty for fair proceedings?
The answer is unclear. The High Court has previously determined that a tribunal’s assessment of fairness depends on the specific circumstances in a case. In the case of Bandwidth Shipping Corp v Intaari (A Firm) (The Magdalena Oldendorff) [2007] EWCA Civ 998, Lord Justice Waller observed that “if an arbitrator appreciates that a party has missed a point, then fairness requires the arbitrator to raise it so that the party can deal with it.” This observation was made in the context of a point which was in issue, and which was required to be dealt with. Conversely, in ED & F Man Sugar Ltd v. Belmont Shipping Ltd [2011] EWHC 2992 (Comm), the High Court found that Section 33 does not require arbitrators to draw a party’s attention to a possible argument or specific authority that has been missed. Indeed, this kind of intervention risks giving the party an opportunity to put a different case from the one it had chosen to put. The intervention of this type was not encompassed by the duty to give a reasonable opportunity to put its case, and, whilst arbitrators are not barred from asking a party whether it has considered raising a different case from that which it has advanced, Section 33 of the AA 1996 does not oblige them to do so.
The case of ED & F Man Sugar Ltd v. Belmont Shipping Ltd also reflects that, even if the tribunal in Nigeria v P&ID had felt (based on the circumstances) that it had justification on the grounds of fairness to intervene and grant Nigeria an opportunity to run its case differently, there are other duties beyond the duty to promote fairness which must be considered and weighed up by the tribunal. There would have been impartiality concerns associated with allowing Nigeria to advance a different case from the one
it had chosen to put. The tribunal also had a duty to adopt suitable procedures and avoid delay in the arbitration in a case that had already been plagued by the delay caused by Nigeria’s failure to engage.
In his speech to the ICC UK Annual ADR and Arbitration Conference in October 2023, Mr Justice Foxton highlighted difficulties with an interventionalist approach and why a tribunal may be hesitant to scrutinize, probe and ask for further submissions from a party:
“It is, of course, always open to the tribunal to go back to the parties to ask for further submissions on alternative bases. However, a tribunal’s reluctance to do so is easy to understand. There is not only a statutory duty, under s.33 of the Arbitration Act 1996, but a professional impetus to resolve an arbitration as expeditiously as possible. The closing of the record and filing of post-hearing memorials are generally regarded as a watershed moment in the arbitral process. Further, for the tribunal to “show” its hand in this way, for the purpose of inviting further submissions, risks the parties adjusting their behaviour in anticipation of the terms of the award. Lewison LJ’s description of the trial is equally applicable to the merits hearing in an arbitration: it is not “a dress rehearsal.” It is the first and last night of the show. There is a difficult line for the arbitral tribunal to walk here. It is important when the court is asked to determine whether they have stepped over it to pay appropriate regard to the reasons why the arbitral tribunal found themselves in such a position and the pressures of finality which they face.
The court’s approach to challenges under Section 68 of the AA 1996
The figures reported in the annual Commercial Court Report (published by the Judiciary of England and Wales) show that it is difficult to successfully challenge an arbitral award on the basis of serious irregularity. Of 26 applications in 2020 to 2021, only one succeeded. The second limb of Section 68 requires the applicant to demonstrate not only a serious procedural irregularity but also that this risks a “substantial injustice.” Nigeria v P&ID met the threshold owing to the factual findings of bribery and corruption and not because of the tribunal’s conduct.
Recent cases in which applicants have failed to set aside awards under Section 68 include the challenges leading to LMH v EGK [2023] EWHC 1832 (Comm) and BPY v MXV [2023] EWHC 82 (Comm). Both challenges arose (in part) from a tribunal’s decision not to intervene procedurally during the arbitral proceedings. In LMH v EGK, one of the alleged irregularities was that the tribunal determined damages using a methodology not put forward by either of the parties. Mr Justice Foxton held that Section 33 did not require the tribunal to give the parties an opportunity to make submissions on the tribunal’s methodology or calculation. It suffices that the issues relied upon by the tribunal were ‘in play’ or ‘in the arena’ during the arbitral proceedings. He quoted Popplewell J’s judgment in Reliance Industries Ltd v The Union of India [2018] EWHC 822:
“It is enough if the point is ‘in play’ or ‘in the arena’ in the proceedings, even if it is not precisely articulated… a party will usually have had a sufficient opportunity if the ‘essential building blocks’ of the tribunal’s analysis and reasoning were in play in relation to an issue, even where the argument was not articulated in the way adopted by the tribunal. Ultimately, the question which arises under s.33(a), whether there has been a reasonable opportunity to present or meet a case, is one of fairness and will always be one of fact and degree which is sensitive to the specific circumstances of each individual case.”
In BPY v MXV, one of the bases on which the applicant brought a Section 68 challenge was that the arbitrator made a finding of dishonesty without that case having been put to the witnesses having directed that she did not expect all points to be expressly challenged in cross-examination. The Court held that the arbitrator’s decision was not contrary to the general duty under Section 33 and, given the constraints of time, there was no irregularity in the witnesses not being cross-examined more than they were about the alleged dishonesty.
Specifically in relation to whether Section 68 can be used where a tribunal allegedly fails to act positively to protect a party from inaction or negligent representation from its legal team, Mr Justice Knowles acknowledged in the Nigeria v P&ID judgment that there are limitations to the applicability of Section 68 in these types of scenarios. He accepted that P&ID’s counsel provided a ‘blunt and correct’ assessment of the limitations to Section 68:
“Section 68 is not there to give you a remedy if you instruct an honest lawyer who makes a mess of it or doesn’t take an available point. That is just tough. You have made your arbitration bed, and you lie on it.”
Conclusion
The general approach in international arbitration, particularly in common law jurisdictions, is for the tribunal not to intervene to protect a party (including from its own legal team). On this view, the parties have agreed to arbitrate their disputes, selected their own representation for the arbitration and should accept the consequences of that decision to arbitrate. The decision in Nigeria v P&ID serves as a cautionary example of when the general approach fails. The English courts recognize that the correct approach to the tribunal’s balancing act under Section 33 depends on the circumstances of the case. When a tribunal determines what procedural decisions to make and how interventionalist it should be, its responsibility is to consider all the circumstances in the case and weigh up all competing factors.
