Court of Appeal to consider enforcement of US$9.5 billion award against the Republic of Nigeria

30/09/19

The Court of Appeal is to consider the enforcement of a massive arbitration award against a foreign sovereign state.  In a Judgment handed down on 16 August 2019, the Commercial Court (Butcher J) had granted permission to enforce a final arbitral award for US$6.5 billion against the Federal Republic of Nigeria, notwithstanding that the arbitral proceedings had been prohibited and the prior award on liability had been set aside by the Nigerian Federal High Court before the final award was made, and the final award was criticised in uncontroverted expert evidence as “clearly unreasonable and manifestly excessive and exorbitant”, “completely wrong and obviously unjustifiable”, “an extreme distortion” of the discounted cash flow valuation method adopted for the calculation of damages, and “punitive”.  The award with accumulated interest is now worth in excess of US$9.5 billion.  It is considered to be one of the largest commercial arbitration awards ever made.

The award arose out of a dispute concerning a 20-year contract between the Claimant (“P&ID”) and Nigeria for the construction and operation of gas processing facilities in the Niger Delta to process ‘wet’ natural gas.  The contract was governed by Nigerian law, and it contained an arbitration clause providing for arbitration under the rules of the Nigerian Arbitration and Conciliation Act, and that “the venue of the arbitration shall be London, England or otherwise as agreed by the Parties”.  The central issue before the Court was whether the seat of the arbitration was Nigeria or England.

In a partial award on liability, the arbitral Tribunal had upheld P&ID’s claim of repudiatory breach of contract against Nigeria.  The English court had then rejected a s.68 challenge by Nigeria as out of time. Thereafter, the Nigerian Federal High Court had granted an interlocutory injunction prohibiting the continuation of the arbitral proceedings, and it had subsequently set aside the liability award.  P&ID had made no attempt to contest the jurisdiction of the Nigerian court.  Instead, it had asked the Tribunal for a ruling on the seat of the arbitration.  The Tribunal had ruled that the seat was England, and it had then proceeded to assess quantum, ignoring the orders of the Nigerian court.  Nigeria had thereafter contested quantum under protest.  On 31 January 2017, the Tribunal had issued a Final Award in which, by a majority, it awarded P&ID damages of US$6.56 billion plus interest.

P&ID then commenced proceedings in the English courts to enforce the Final Award as a judgment or order of the English court under s.66 of the Arbitration Act 1996. In granting permission, Butcher J held that it was implicit in the arbitration agreement that the parties had agreed that the Tribunal should be able to determine any issue as to seat, although this was a “somewhat unusual type of determination”; and that the Tribunal’s ruling on seat was binding on Nigeria, and was in fact correct. 

On Nigeria’s alternative argument that the award should not be enforced as a matter of public policy because it was manifestly excessive and penal in effect, the Judge held that the Tribunal had intended to award only compensatory damages, even if it erred in fact or law in doing so (as to which, no view was expressed).  He further held that there was a strong public policy in favour of enforcing arbitral awards, which outweighed any public policy in refusing enforcement of an award of excessive compensation, whether or not such excessive compensation was labelled as punitive or penal. 

However, at a further hearing on 26 September 2019, Butcher J granted Nigeria permission to appeal against his decision on all of these issues on the grounds that (a) Nigeria had a real prospect of success on appeal and (b) the matter was of substantial importance to the Government and people of Nigeria.  In addition, the Judge granted a stay of enforcement pending appeal, conditional upon payment into court by Nigeria of a sum of US$200m.

The Judgment is here.