Earlier this month, the High Court handed down a significant judgment granting the Federal Republic of Nigeria more time to challenge a US$10 billion arbitral award issued against it in January 2017. At the time, the award caused a stir in Nigeria and beyond. Not only because it was one of the largest awards granted against a sovereign state, but it also amounted to a quarter of the country’s foreign reserves or a fifth of its annual exports.
The Arbitration Act 1996
The remarkable decision to grant this extension so that Nigeria can bring its challenge was made despite the expiry of the 28-day time limit for doing so under the Arbitration Act 1996 (the Act) by over three years.
Under the Act, the object of an arbitration is the resolution of disputes without unnecessary delay, and courts should not intervene. As such, Nigeria’s “extraordinary” delay in challenging the award seemed to be ill-fated. That said, a party to arbitral proceedings may challenge an award on grounds of serious irregularity affecting the tribunal, the proceedings or the award pursuant to s.68 of the Act, and serious irregularity includes the award being obtained by fraud or contrary to public policy.
The High Court found that where there is a strong prima facie case of fraud, an extension of time should be allowed where the applicant would suffer an injustice in the underlying dispute if deprived of the opportunity to make a challenge.
The Court found that Nigeria established a strong prima facie case for fraud, involving insiders from within the state oil corporation, several civil servants including the then Minister of Petroleum Resources, and Nigeria’s own counsel in the arbitration proceedings.
In January 2010, Nigeria entered into a gas supply and processing agreement (the Agreement) with Process & Industrial Developments Limited (P&ID), a BVI registered shell company with no assets, few employees, and no website. Under the Agreement, Nigeria was to supply P&ID with natural gas for 20 years at a facility P&ID was to build.
The Agreement was not implemented and in August 2012 P&ID commenced arbitration proceedings against Nigeria. The Tribunal issued an award on liability in July 2015 finding that Nigeria was in breach and that P&ID was entitled to damages. The liability award was followed by a subsequent final award issued in January 2017 where the Tribunal found that P&ID had suffered a loss of US$6.6 billion, plus pre-, and post-award interest of 7%. Following a successful enforcement application by P&ID in August 2019 (subsequently stayed), Nigeria challenged the final award in December 2019.
Separately, in September 2019, following an investigation by Nigerian authorities, it emerged that several advisers at the Ministry of Petroleum Resources had allegedly received bribes from P&ID in return for overlooking shortcomings in its bid to be awarded the contract. It also emerged that Nigeria’s counsel in the arbitration up to and including the liability stage had made payments to individuals at the state oil corporation and Ministry of Petroleum Resources.
The Court found prima facie evidence that the Agreement was procured by bribery, and the arbitration proceedings were tainted by perjured evidence and Nigeria’s counsel having been corrupted.
Extension of time – relevant factors to consider
Notwithstanding the importance of finality and time limits in arbitration, the Court noted that “there is no rule of law which automatically prioritises the finality of arbitral awards over the public policy of refusing to endorse illegal conduct”.
Having held that Nigeria had established a prima facie case of fraud, the Court examined various factors to be considered when asked for an extension of time to challenge an arbitral award.
- Length of delay: it was accepted that the delay in seeking an extension is “unprecedented”. It was noted however, that the reason for the delay was that P&ID had successfully concealed its fraud during and after the arbitration.
- Reasonableness: the Court accepted that there was nothing which Nigeria ought to have been aware of to cause a reasonable person to have discovered the alleged fraud.
- Respondent’s contribution to delay: Nigeria’s prima facie case of fraud was covered up by P&ID, thus contributing to the delay.
- Prejudice to the respondent: in circumstances such as this, there can be no prejudice to the respondent in being subject to a full inquiry into the fraud at trial.
- Strength of the application: this was met for the above reasons and due to Nigeria’s strong prima facie case of fraud.
- Fairness “in the broadest sense”: in this case the Court highlighted that fairness “does have an impact in challenges where there is strong prima facie evidence of fraud, certainly of the through-going character alleged in this case. Not only is the integrity of the arbitration system threatened, but that of the court as well, since to enforce an award in such circumstances would implicate it in the fraudulent scheme”.
This case highlights significant hurdles which a party will have to overcome to persuade a court to overlook the prescriptive provisions of the Act, which are underpinned by speed and finality. The extent and nature of the information relating to the alleged fraud against Nigeria and its emergence at the eleventh hour were factors which ultimately contributed to the Court finding in its favour. It is also the case, however, that allegations of fraud are not to be made lightly and will require cogent evidence. With that in mind, it remains the position that parties to arbitrations will find it difficult to obtain extensions of time or indeed have a court set aside an award.