In this piece, Ruth Morenike Oluwadare examines the United Kingdom’s Commercial Court’s Enforcement Order granted to P&ID for $9.6 billion and the Federal Government of Nigeria’s response.
On August 16, 2019, Mr. Justice Butcher of the England & Wales Business and Property Courts, Commercial Court of the Queen’s Bench Division (Commercial Court) granted Process & Industrial Developments Ltd (P&ID) an Enforcement Order against the Federal Republic of Nigeria (FRN), to seize $9.6bn of Nigeria’s assets in fulfilment of a 2017 arbitration award. The news of this damning award comes at a time of shaky and questionable recovery out of a severe recession and political uncertainty which has left the nation reeling.
The gas, supply processing agreement
In January 2010, P&ID and Nigeria, through the Ministry of Petroleum Resources, at that time under the control of Late Dr Rilwanu Lukman, signed a Gas Supply and Processing Agreement (GSPA). Under the agreement, P&ID was to build an accelerated gas development project situated in Adiabo in Odukpani, Cross River State.
The most important contractual obligation on the Federal Government was to build a gas supply pipeline to the P&ID facility in Cross Rivers State. This pipeline was never built and this, P&ID alleged, was a fundamental breach of the GSPA that deprived them of potential profit.
Following this breach, arbitration proceedings commenced between the two parties. The Arbitral Tribunal made three awards after the following issues were contested: the tribunal’s jurisdiction to hear the matter and the seat of arbitration; the liability of the Federal Government of Nigeria; and the quantum of liability. All the three awards were made in favour of P&ID with the Court ruling that it was the intention of both parties to have the seat, and not just the venue, of the arbitration in the UK. The transaction, therefore, was governed by English law, as opposed to Nigerian law. This decision had the biggest effect on the overall dispute as the jurisdiction of Nigerian Courts was ousted, thereby making any ruling handed down by a Nigerian court on the dispute redundant. On a few occasions, the Nigerian Government sought to circumvent orders of the English Court by instituting actions in Nigerian Courts. It was held that as both parties had by conduct, at the very least, accepted the supervisory jurisdiction of the English Courts, no Nigerian Court judgement could have effect on the substantive matter. As such, it was ordered that the Nigerian Government pay $9.6bn to P&ID for breach of contract including interest.
What the Nigerian government intends to do about the enforcement order
It is clear that the Federal Government of Nigeria (FGN) intend to either appeal the enforcement order or settle with P&ID as, on the 26th September 2019, the FGN was granted a stay of execution on the condition that the sum of $200 million be paid as security within 2 months of the order for stay.
Further, various agencies of the Federal Government have made proclamations about the efforts and strategies in place to halt the enforcement order. Such strategies include investigations by the Economic and Financial Crimes Commission, the National Intelligence Agency and the Nigeria Police Force into the original GSPA signed between P&ID and the Ministry of Petroleum Resources. However, the question of the legality and feasibility of the agreement signed is neither here nor there as the crux of the matter is whether or not Nigeria will be able to use a principle of international law, sovereign immunity, as a way of blocking the enforcement of the award.
What is sovereign immunity?
Sovereign immunity is the well-established principle of international law precluding the institution of a suit against a sovereign government without its permission. By relying on this principle, the FGN may seek to argue that the enforcement of the arbitration award against a foreign state is not only contrary to the aforementioned principle but also contrary to the UK’s State Immunity Act 1978, specifically section 14, which prohibits suits against a sovereign State in the UK.
Likelihood of success for the sovereign immunity argument
It is worth noting, rather ironically, that the hallmark case for this argument involved the Central Bank of Nigeria (CBN) — Trendtex Trading Corporation v. Central Bank of Nigeria  2 W.L.R. 356 where Lord Denning M.R. stated in clear terms, relying on his judgment in Thai-Europe Tapioca Service Ltd. V. Government of Pakistan Directorate of Agricultural Supplies  1 W.L.R. 1485, that “a foreign sovereign has no immunity when it enters into a commercial transaction with a trader here and a dispute arises which is properly within the territorial jurisdiction of our courts … if a government department goes into the marketplaces of the world and buys boots or cement – as a commercial transaction – that government department should be subject to all the rules of the market place.”
Lord Denning M.R. went further to rely on a German decision, in Y.M.N. Establishment v. Central Bank of Nigeria (decided December 2, 1975) which involved the CBN issuing a letter of credit under similar circumstances. The Frankfurt court held that “a foreign state may be granted immunity from the German jurisdiction only in respect of its sovereign activity but not in respect of its non-sovereign activity, because no general rule of public international law exists under which the domestic jurisdiction for actions against a foreign state in relation to its non-sovereign activity is precluded.”
The above decisions are in line with the provisions of Sections 3 and 9 of the UK’s State Immunity Act which exempt commercial transactions from the application of the principle of sovereign immunity. They, therefore, show that the likelihood of success for the “sovereign immunity” argument is extremely low given that the contract between P&ID and the Ministry of Petroleum Resources was of a commercial nature. Moreover, the argument of sovereign immunity is a defence to the institution of a claim against a sovereign state without its permission, and not the enforcement of a judgment, especially one resulting from proceedings in which both parties had participated without objection.
What has happened since the enforcement order was made?
Since the Enforcement Order, alarming developments have followed including: an Article on Bloomberg.com titled “Is One of the World’s Biggest Lawsuits Built on a Sham?” wherein it is alleged that the owners of the Irish company, P&ID, Michael Quinn and Brendan Cahill, are known fraudsters; news of Nigerian directors of P&ID, Mr. Muhammad Kuchazi and Mr. Adamu Usman, pleading guilty on behalf of the company to an 11-count charge bordering on fraud, tax evasion etc.; and the publication of a website (https://pandidfacts.com) openly sympathetic towards P&ID.
Notwithstanding the discovery of corruption and fraud in the GSPA and the doubt of credibility and objectivity in the claims before the arbitral tribunal, the apparent lack of seriousness and urgency with which this arbitration was handled is inexcusable. These discoveries and government mandated investigations into the GSPA, albeit welcomed, are far too late and may be of little or no relevance at the point of an Enforcement Order. This level of scrutiny should have been employed long before the commencement of arbitration.
Given the low probability of a successful argument based on the principle of sovereign immunity and the fact that investigations mandated by the FGN may be of no effect on the Enforcement Order, it was prudent of the FGN to seek a stay of execution against the award. While the sum of $200 million, significantly lower than the arbitration award, is required to secure the stay of execution, it is still, in context, a large figure amounting to the total budget allocated to the Nigerian Navy.
The Enforcement Order is a lesson to the world that commercial contracts entered into on behalf of a sovereign state will be viewed with the same seriousness as contracts between corporations and or private persons. As such, governments should be cautious and aware of all legally binding agreements to which they are party as it may not be an excuse, at the point of enforcement, that a contract was entered into fraudulently. Moreover, sovereign immunity is not a blanket or automatic defence where proceedings are commercial in nature, regardless of the purpose of the contract. Be that as it may, it will be interesting to see whether the total amount awarded is recovered as it is one thing to enforce the order and another to recover the awarded amount.
Oluwadare is an Associate at Charles Anthony LLP, Cross Border Legal Practitioners. She obtained her LL.B from the University of Manchester and her LL.M from the College of Law, London.