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Published On: Wed, Sep 11th, 2019

$9.6 bn Judgment debt: Need for urgent legislative action

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Few weeks ago, the news of the Federal Government of Nigeria’s alleged breach of the Gas Supply and Processing Agreement (GSPA) it signed with Process and Industrial Development ltd (P&ID), a British company broke out.
The GSPA began with a proposal from P&ID sometimes in 2007 to the effect of refining natural gas for powering Nigeria’s electricity grid in 2010, a contractual agreement was entered to by the parties at a time when the incumbent president was completely medically unfit to take decision on any issue whatever the sensitivity or importance; Nigerian government was to supply 150million standard cubic feet (scf) of gas per day to the P&ID plant at the onset but expected to rise to 400mmscf over the life of the contract; P&ID was to refined the gas and supply Nigeria 85%of the refined gas for electricity generation while the company retain the remaining 15% and all other by-products of the process. According to the contract, Nigeria was obligated to build a gas supply pipeline to the P&ID facility.
Fast forward, the company sued the Federal Government of Nigeria for not constructing the pipeline which the company considered a breach of the contractual agreement at a London high court and got a favourable judgement against Nigeria which escalated when the window of opportunity to discuss the possibility of a drawdown of the penalty award was not taken by the Nigeria government leading to the recent compensation award to the tune of $9.6 billion covering lost potential profit over the 20 years period from the contract by the claimant company
The position of every concerned Nigerian since the break out has been the recurring evidences against the validity of the said GSPA contractual agreement and the unbelievable admission of the arbitration by a London court of the petition of the complainant.
No one is in doubt that the Nigeria government was a party to the agreement but every Nigerian wants to know who authorized the agreement; we all want to know if Nigeria set due processes were followed; we want to know who is constitutionally designed to sign such contract and who signed the GSPA agreement on behalf of Nigeria. To what extent was the standing and capacity of the company to implement the contract verified and is there any evidence of the attempt by the company to begin the project implementation at any time after the signing of the agreement? Does the high court sitting in London rightly possess the jurisdiction on the case?
Nigeria is a sovereign nation governed by laws. National interaction with entities within and outside the country; either for consensual business or any other purpose are dictated by the statement of the nation constitution and relevant extant laws guiding such.
The Federal Government of Nigeria approved process of doing business and entering into contractual agreement of the nature of the GSPA as at the time the said contract was allegedly signed was simple; when a contractual proposal of the nature of GSPA is submitted to the FGN, it is forwarded to the Infrastructure Concession Regulatory commission (ICRC) for consideration and then forwarded to the Federal Executive Council (FEC) for deliberation and all subsequent action. Based on all available documentation, this due process was not adhered to; the ICRC nor the FEC has no documentation to the effect of receiving such proposal or having considered it for possible recommendations to the President.
The contractual agreement was signed on behalf of the Nigerian government, definitely must be with the approval of the President Umaru Yaradua who coincidentally was mostly sick and unconscious over the period in question. There is absolutely no way the president could have either be in the know or permit the signing of the contract at that material time because he was completely indispose and incapable of performing that function.
The argument for the possibility of the President giving such order is further watered down with the knowledge of the fact that all the individuals who must be in the know if the order for final approval and signing had come from the sick president were completely in the dark; Mr. Taminu Yakubu, the Chief Economic Adviser to the president is one man who must be in the know if the president is to give such a permission to sign the agreement because of his involvement in the gas processing deal, but he knew nothing about the signing of the contract. The then Attorney General of the federation and the Minister of Justice as at the time, Mr. Michael Aandoka has come out to state that he knew nothing about the contract; Engr. Emeka Ezeh, the then Director of the Bureau of Public Procurement (BPP) was one man the president would never by-pass when it comes to contracts( according to Olusegun Adeniyi), yet he only became aware of the contract when the scandal broke. If these men and several others who were supposed to be privy to such agreement knew nothing about it until now and it was never discuss on the floor of the Federal Executive Council, how can such a contractual agreement be accepted by Nigeria as a binding document on the nation.
Patriotic Nigerians have being bothered by the implication of such judgement on the economy, survival and sovereignty of the nation. The awarded value is approximately a quarter of the nation annual budget; but not only would Nigeria suffer a big blow economically in the event of accepting and performing the terms of the judgement, but we will also be setting a bad precedence for the global community
Was the contract deliberately designed to fail as opined from some quarters? Is the judgement a calculated collusion and attack on the rising foreign reserve of the Nigeria? Who are the people behind the alleged mass plan to scam the nation? Is it true that all the other gas development projects contracts signed about the same time followed due process and were duly executed except the GSPA?
The awarded damage was clearly unjustifiable, unreasonable, clearly extreme and unacceptable to Nigerians. The court is seen across board to have over-assumed and compensated P&ID on an inconceivable scale and exacting a punishing award against Nigeria.
The Speaker, Federal House of Representative, Rt. Hon. Femi Gbajabiamila, in his position as a Nigerian is quite aware of the magnitude of the strain the judgement would bore on the nation if allowed to stand. He therefore had put it upon himself to understudy the elements of the said agreement with the aim of deciding its binding capacity on Nigeria, and he thus submits;
Nigerians at home and abroad recently received with shock the news that a foreign court had granted an enforcement order for the staggering sum of $9Bn (Nine Billion US Dollars) as compensatory damage against the Federal Government of Nigeria. This enforcement order was granted to enforce the Final Award granted by an Arbitration Panel in the matter of Process and Industrial Development Ltd v Federal Government of Nigeria (FGN), as a consequence of the panel’s determination that the Government of Nigeria failed to live up to its contractual obligations to the claimant company.
In addition to the questions of fact and law that are still under consideration by different courts in multiple jurisdictions, this case raises certain fundamental public policy issues which must be addressed, lest the best interests of our nation are wittingly or unwittingly mortgaged. We must also be mindful of the fact that the quantum of the award represents about 25% of our annual national budget, and as such the enforcement of this order will inevitably have very real consequences on our national development ambitions. My position on this subject should not be taken as an endorsement of Nigeria’s sometimes unpardonable ways of not respecting the sanctity of contracts, but as a necessary consideration of this case as a standalone matter, distinguished both by the nature of the contract, the subtext of its wider implication to our sovereignty and the possible unintended consequences if this judgment is enforced as is.
Let us consider first, the question of whether or not the Commercial Court of the High Court of Justice of England and Wales has jurisdiction over the enforcement of the arbitral award, and the authority to intervene as it has done, and following from that, whether there is a difference between the Seat of Arbitration and the Venue of Arbitration. The Agreement between the Federal Government of Nigeria and the claimant company clearly stated that the agreement shall be construed in accordance with the Laws of the Federal Republic of Nigeria. This unambiguously implies that any interpretation of the contract, issues or dispute arising out of the contract shall be resolved in accordance with the Laws of Nigeria. In other words, as far as any issue arises from the entire contract, whether as to the manner or style of performance of the contract, non-performance, recourse to arbitration and enforcement of any award, the laws of the FRN will apply. Parties went further to agree that the Nigeria Arbitration and Conciliation Act CAP A18 Law of the Federation of Nigeria 2004 and its ancillary Rule shall be applied in the resolution of any dispute.
The Claimant accused the government of repudiating the contract and rightly referred the dispute to arbitration as provided in the agreement. The issue of applicable law initially appeared to be straight forward as it was provided for in the GSPA particularly in Clause 20 but an award by the arbitral tribunal inadvertently made it an issue. This was exacerbated by the judgement under review. Justice Butcher in paragraph 45 fully acknowledged that the governing law of the GSPA is the Nigerian Law but made a summersault when it came to the issue of determining the seat of arbitration. It is my opinion that the Learned Justice Butcher erred in law when he held in paragraph 49 that “place of the arbitral proceedings” meant the same as the “juridical seat”. The learned justice in reaching this determination failed to explain how the parties having agreed for themselves to be bound by the laws of Nigeria, will now leave it to the English courts to administer the laws of Nigeria, drawing on the English Arbitration Act of 1996.
It is necessary at this point to reinforce that there is as a matter of statute and precedence, a world of difference between the venue/place of arbitration and seat of arbitration (Lex Arbitiri). While the “place” or venue can be a choice of convenience to the parties, the “seat” is a legal construct which determines the court that has supervisory powers over the conduct of the arbitration. In the extant case, apart from stating that the contract between the parties shall be governed by Nigerian law, the contract equally provided that any arbitration shall be governed by the Arbitration and Conciliation Act, which invariably means that the seat of Arbitration shall be Nigeria. This is because the Nigerian Arbitration and Conciliation Act envisages the supervision of any arbitration under the Act by Nigerian Courts and not English Courts. For the avoidance of doubt, Section 57 of the Act defines court found in the Act to mean the “High Court of a State, the High Court of a Federal Capital Territory, Abuja or the Federal High Court”. The choice of London as venue of the arbitration is, therefore, a matter of convenience and cannot be construed to mean the seat of arbitration as determined by the Arbitral Tribunal and the judgment of Justice Butcher.
In the extant case, the contract provides that the venue will be London but the law governing the conduct of the arbitration (seat of arbitration) is the law of Nigeria. This to my mind is a concerted effort by the parties to clearly determine their terms to the letter. To hold anything to the contrary will amount to a butchering of the GSPA. Following therefrom, it is my opinion that the High Court of England has neither the supervisory nor enforcement jurisdiction over the arbitral proceedings as the letters of the GSPA is very clear on that issue. The court with the jurisdiction is the Federal High Court of Nigeria. This position is supported by the rulings of the English courts in Tonicstar v. American Home Assurance Company (2004) EWHC 1234 wherein the Court held that where a contract was made in London, signed in London, to be executed in London, made in accordance with the laws of England, it is to be inferred that the parties intended these provisions to be determined by the English court, but even when there is no implied choice of law, there is a presumption under the Rome Convention that the applicable law is that of the place of business of the party whose performance is characteristic of the contract.
As to the question of whether under the international law, the High Court England and Wales has jurisdiction to attach the property of another sovereign nation, I believe that where a sovereign state submits to arbitration, the award emanating from the arbitration proceedings cannot be denied on the ground of immunity. However, a waiver of immunity on adjudication is different from the immunity from attachment or execution. The proceeding and the right do not imply the other. Assuming without conceding that the FRN impliedly waived its immunity from adjudication, it did not waive its immunity from attachment or execution. Section 13(2)(b) of the State Immunity Act of England 1978 provides that a sovereign state’s property can only be attached with the state’s consent or where the property is shown to be expressly used for commercial purpose. To this extent, should the judgement eventually stand, the issue of attachment of state property will still have to be addressed and at which point a distinction would be drawn between state assets for state purposes which are beyond the reach of any enforcement judgment and state assets for commercial purposes which may be attached as per the order of a competent court.
Much has been made of the fact that Nigeria is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention, 1958) as if by virtue of the Convention, the rules of national sovereignty are suspended. That is not the case. The Convention requires the courts in the contracting states to give effect to private agreements to arbitrate and to recognize and enforce arbitration awards made in other contracting states. The government of the Federal Republic of Nigeria (FRN )ratified the New York Convention on the 17th of March 1970 and it formally came into force in the territory of Nigeria on the 15th June 1970. The Convention was further domesticated into Nigerian law via incorporation into the Second schedule of the Arbitration and Conciliation Act (ACA) 1988.
In this particular case the Convention applies to the extent that the Federal Government of Nigeria (FGN) is committed to respecting and abiding by the determination of the Arbitration Panel having exhausted all available legal means to defend its legitimately held position and to protect the assets it holds in trust for the Nigerian people. It does not amount to a surrender of national sovereignty or an abdication of the right to contest the Final Award or the modus of its enforcement.
Every contractual dealing contains within it an implied covenant of good faith and fair dealing with the general presumption that the parties to the contract will act honestly and fairly to each other. As at the time of filing their claim against the government of Nigeria, there was no evidence the claimant had fulfilled their own part of the contract by constructing the gas plant to be fed by the federal government’s proposed pipeline. It is the claimant’s position that the construction of a pipeline by the federal government should have come in advance of their own obligation to build the gas plant, and it is as a consequence of the federal government’s failure to build that pipeline that the claimant now seeks to walk away with an award of Nine Billion US Dollars.
This is a flawed position that should have been defeated at the earliest stages of the litigation in this matter for the simple reason that to file a claim against a contractual partner where you yourself are arguably in breach of the same contract is a clear-eyed denunciation of the good faith and fair dealing principles that are at the heart of contract law. That both the Arbitration Panel and the High Court of England and Wales have allowed this position to stand is further reason why we must treat the outcomes of both processes with deserving scepticism.
Furthermore, having accepted the claimant’s position that they were due compensation as a consequence of the federal government’s failure to meet its obligations under the contract, the Arbitration Panel determined the damages due the claimant by calculating the claimant’s projected earnings over twenty (20) years, less capital and operating expenditure, assuming perfect market conditions. I find this strange, and my conversations with others better versed in these matters reinforce my objection. The arbitration panel in seeking to make the claimant whole assumed facts not in evidence, made presumptions that were not supported by historical patterns and on the basis of these errors, imposed on the Nigerian people a judgment so heavy that the dire consequences of its enforcement will be felt across multiple sectors of the Nigerian society including our national security for long after the facts of this case are no longer remembered.
In reaching the Final Award, the Arbitration Panel assumed in its calculations that the yet to be built plant would have been delivered on time and would operate at 93% uptime for the twenty-year duration. The Panel further assumed that the average global oil price will remain above $100 (One Hundred US Dollars) for the same duration. Everything we know about the volatility of the oil and gas industry in Nigeria leads one to believe that the former assumption is based on nothing if not ephemeral hope. Already, the latter assumption has been rubbished by the real price of crude oil in the global markets since the determination of the final award. Yet, the award calculated using these fundamentally flawed indices still stands. This is neither fair nor just and we ought not to accept it without objection. Anything short of this comes under the equitable doctrine of unjust enrichment a defence in contract law.
We must all at this time avert our minds to the best options for resolution of this matter in such a manner that protects the genuine commercial interests of the claimants without causing any more injury to the Nigerian state and the Nigerian people. Already, there are multiple appeals against both the arbitration award and the enforcement order by the British courts. As it is to the National Assembly, that the constitution of Nigeria grants the power of the purse and appropriation , it is my opinion that the Assembly ought to be a necessary party to all ongoing litigation whether by means of joinder or by initiating fresh action. Whilst we await the final determination of these matters in the court of law, simultaneous diplomatic back-channel discussions must be ongoing. We must approach these talks with all options on the table, recognising the urgency of the situation and the very high stakes and dire consequences of failure.
I am heartened by the fact that the Economic and Financial Crimes Commission (EFCC) has commenced a criminal investigation into the circumstances of the contract between the Federal Government of Nigeria and Process & Industrial Development Ltd. I hope that this investigation will be conducted expeditiously and with due care so that where anyone is found liable for negligence, recklessness or less than professional conduct such a person will be made to face the full wrath of the law as a deterrent to others. Those who are elected and appointed to represent the interests of the people of Nigeria must recognise that they are rightly held to higher expectations, and they must live up to those expectations.
Beyond the present matter, there is a need for the National Assembly to begin an urgent and comprehensive review of all protocols, treaties and agreements signed by the country over the years whether or not ratified as it may be time to opt-out of those that may no longer serve our country’s interest. Time sometimes may change the dynamics and make such agreements less favourable to us as a country. Treaties are not in perpetuity and a country cannot be held in bondage by virtue of having signed one. The United States of America has a long history of conducting such reviews and acting in the best interests of the nation. From the Kyoto protocol renunciation to most recently, the withdrawal from the Joint Comprehensive Plan of Action known commonly as the Iran nuclear deal and withdrawal also from the North American Free Trade Agreement (NAFTA), with the latter now being renegotiated in view of present realities. This is the same approach we must adopt in the best interests of the Nigerian people.


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