Process and Industrial Developments Ltd -v- Nigeria [2019] EWHC 2241 (Comm)

This was an application by the claimant, Process and Industrial Developments Ltd (‘P&ID’), pursuant to s. 66 of the Arbitration Act 1996, for an order that P&ID have leave to enforce an arbitration award dated 31 January 2017 (‘award’) in the same manner as a judgment or order of the English court. The defendant, the Federal Republic of Nigeria (‘the FRN’), resisted the making of the order. 

Factual background

The award was stated to be a final award made by the majority of a tribunal in arbitration proceedings relating to a dispute between P&ID and the FRN arising out of a Gas Supply and Processing Agreement (the ‘GSPA’) entered into between P&ID and the FRN dated 11 January 2010.

Clause 20 of the GSPA provided, in part, that the GSPA was to be governed by Nigerian law, any dispute was to be referred to arbitration and the venue of the arbitration ‘shall be’ London, England or otherwise as agreed by the parties.

By 2012 a dispute had arisen in relation to the GSPA, a tribunal was then constituted and found in favour of P&ID by way of part final award (the ‘liability award’).

Subsequently, following dismissal of an application under CPR Part 62.9(1) extending the time under s. 70(3) Arbitration Act 1996 for an application under s. 68 of that Act; and (2) an order setting aside the liability award and/or remitting it for further consideration under s. 68(2)(d) or s. 68(2)(f) Arbitration Act 1996, on the basis that there had been a serious irregularity, the FRN commenced proceedings in the Federal High Court of Nigeria seeking inter alia the setting aside of the liability award, one of the grounds being the parties having effectively agreed that the seat of arbitration was Nigeria. In correspondence exchanged between the parties, P&ID’s main position was that the parties had agreed, by the arbitration clause in the GSPA, that London was the seat of the arbitration. The tribunal noted the exchanges and P&ID’s request to rule on the point and said that it would do so shortly.

In the meantime, the FRN applied for and obtained from the Nigerian court an order restraining the parties from taking any step or action in the arbitral proceedings pending the court’s substantive hearing. The tribunal made Procedural Order No. 12 (the ‘procedural order’) stating that the parties and the tribunal had consistently acted upon the assumption that London was the seat of the arbitration, and that the tribunal considered that the FRN had to be taken to have consented to this being the correct construction of the GSPA.

However, subsequently, the Nigerian court ordered that the liability award be set aside and/or remitted for further consideration. The tribunal stated that in light of the procedural order the Nigerian court had no jurisdiction to set aside the award. In due course the arbitration proceedings continued leading to a final award according to which the FRN were to pay US$6,597,000,000 to P&ID. The FRN did not pay any part of the final award and did not apply to set it aside in any jurisdiction.

P&ID commenced the present proceedings seeking leave to enforce the final award in the same manner as a judgment.

P&ID’s main arguments was that the tribunal was entitled to rule as it did on the seat of the arbitration in the procedural order, that it was no longer open to the FRN to challenge that ruling, that the procedural order created an issue estoppel in relation to the seat of the arbitration and in any event the conclusions of the tribunal in the procedural order were correct.

The FRN argued that pursuant to the arbitration clause of the GSPA which provided for Nigerian law the seat of the arbitration was Nigeria. Given that the Nigerian court was the supervisory court, the tribunal’s procedural order was in flagrant breach of the supervisory court’s injunction and the final award (depending on the liability award which had been set aside by the supervisory court) was a nullity. Even if the seat was England, then the final award should not be enforced as a matter of discretion given that the damages were manifestly excessive and contrary to English public policy.

Seat of the arbitration

Although not amongst the pre-existing issues which were referred to arbitration, the English court held that it was an aspect of the parties’ agreement to arbitrate that the tribunal should have the ability to determine an issue as to where the seat of the arbitration was, including the construction of the arbitration clause in the GSPA. It was true that, if this issue arose and was not first determined by the arbitral tribunal, then it would fall to be determined by a court, whether on enforcement or otherwise, but in the first instance it would be for the arbitral tribunal to decide. This was implicit in the agreement to arbitrate in the present case.

As to the FRN’s arguments that the tribunal was acting in breach of that Nigerian court order in issuing the procedural order, the arbitrators were not named as respondents to the application for an injunction and the terms of the injunction did not apply to them.

It was pertinent to recall that at the time at which the injunction order was made, and at the time of the procedural order, there had been no argument before and no resolution by any court, whether in Nigeria or elsewhere, that Nigeria was the seat of the arbitration.

As to the FRN’s contention that the procedure adopted by the tribunal in coming to its conclusion on seat was unfair, the FRN had remedies for any procedural unfairness, but it did not utilise them. If the procedural order was a decision which the tribunal itself had power to review and amend, then the FRN could have made submissions to the tribunal that it should do that. The FRN could properly have challenged the tribunal’s finding of seat, without prejudice to its contention as to where, putting that ruling aside, the seat was located. In any event, the FRN did not even take the equivalent steps which, consistently with its position that the courts of Nigeria were the supervisory courts, it might have taken there.

The judge concluded that the terms of the procedural order coupled with the fact that neither it nor the final award had been set aside by any court, determined the location of the seat of the arbitration as being London, England, and that was not a matter which the FRN could now ask the court to revisit.

Issue estoppel

The conditions to be satisfied for issue estoppel had been considered in a number of cases including in The “GOOD CHALLENGER” 2004 1 Lloyd’s Rep 67, at [50] per Clarke LJ: 

‘(1) That the judgment must be given by a foreign court of competent jurisdiction; (2) that the judgment must be final and conclusive and on the merits; (3) that there must be identity of parties; and (4) that there must be identity of subject matter’.

In the present case, there was no issue as to requirement (3) or (4).

As to (2), while the reference to a decision ‘on the merits’ might suggest that only a decision on the substantive issues between the parties could create an issue estoppel, one of the cases referred to by Clarke LJ, Desert Sun Loan Corporation -v- Hill [1996] 2 All ER 847 established that an issue estoppel could arise in relation to a procedural or non-substantive issue. As to the other requirement under (2) that the decision should be ‘final and conclusive’, if the procedural order was merely a procedural order, then it was susceptible to review by the tribunal itself, and if that were right it would not have been ‘final and conclusive’ when issued. However, it should be regarded as ‘final and conclusive’ at the point when it could not be reviewed by the tribunal, which was at latest when the arbitration concluded. If the procedural order was an award which finally determined the issue before the tribunal (even if it might have been subject to an appeal to a court), then it will have been final and conclusive on the issue of seat when made. On either basis the procedural order satisfied requirement (2). 

As to the FRN’s contention that requirement (1) was satisfied, on the basis that the tribunal was not entitled to make the ruling contained in the procedural order this was based on the argument that the Nigerian court had injuncted the tribunal from taking any further steps in the reference. However, the judge had held that the tribunal was authorised to determine a dispute as to the location of the seat; that it had been asked to do so by P&ID; and that the order of the Nigerian court, even if it had relevant jurisdiction, did not injunct the tribunal from proceeding with the reference. 

Accordingly, the procedural order had created an issue estoppel which precluded an argument as to seat on the current application. 

The decision of the tribunal in the procedural order was correct

The GSPA was written in English. It was not in issue that the question of its construction was governed by Nigerian law. In the present case, there was no evidence that Nigerian principles of construction were different from those of English law, and so they were presumed to be the same. The judge concluded that the GSPA provided for the seat of the arbitration to be in England including for the following reasons:

1.  It was significant that the relevant clause referred to the venue ‘of the arbitration’ as being London. The arbitration would continue up to and including the final award. It did not refer to London as being the venue for some or all of the hearings
2. The same clause provided that the venue of the arbitration ‘shall be’ London ‘or otherwise as agreed between the parties’. If the reference to venue was simply to where the hearings should take place, this would be an inconvenient provision and one which the parties were unlikely to have intended. It would mean that hearings had to take place in London, however inconvenient that might be for a particular hearing, unless the parties agreed otherwise. Accordingly, the reference to the ‘venue’ as being London was better read as providing that the seat of the arbitration was to be England, unless the parties agreed to change it

Public policy

The FRN argued that it would offend English public policy to enforce the final award: an award for damages which were ‘not compensatory, but hugely inflated and penal in nature’. 

The judge was clearly of the view that there was no public policy which required the refusal of enforcement to an arbitral award which was intended to award compensatory damages, and where, even if the damages awarded were higher than the English court would consider correct (as to which he expressed no view), that arose only as a result of an error of fact or law on the part of the arbitrators. The enforcement of such an award would not be ‘clearly injurious to the public good’ or ‘wholly offensive to the ordinary reasonable and fully informed member of the public’. Furthermore, the public policy in favour of enforcing arbitral awards was a strong one, and, if a balancing exercise was required at all, outweighed any public policy issue in refusing enforcement of an award of excessive compensation. The labelling of such excessive compensation as ‘punitive’ or ‘penal’, as the FRN sought to do in this case did not alter the conclusion. 

In the circumstances, the court made an order enforcing the final award in the same manner as a judgment or order of the English court to the same effect. 

Comment

It is interesting to note that in the balancing exercise between refusing enforcement of an award based on excessive compensation against the public policy in favour of enforcing arbitral awards, the latter takes strong precedence. The case is also a useful reminder of how the English court will apply the requirements for issue estoppel.