In the next couple of weeks, a lot will depend on whether Nigeria is able to answer this question in the negative: CAN A SOVEREIGN NATION LIKE NIGERIA WAIVE ITS IMMUNITY AND BE SUED LIKE ANY OTHER LITIGANT IN FOREIGN COURTS? Not only does Nigeria stand to lose a huge portion of its foreign assets to a single investor, plunging the already stressed economy into another financial crisis (put in perspective, Nigeria risks losing about 11% of its current US$43.2billion foreign reserves to a British Virgin Islands incorporated company), the case of Process and Industrial Developments Limited (P &ID) Vs. Federal Republic of Nigeria [2018] EWHC 3714 (Comm) (proceedings instituted in England); P & ID V. Federal Republic Of Nigeria and Ministry of Petroleum Resources of the Federal Republic of Nigeria  Case 1:18-cv-00594-CRC, D.D.C (proceedings instituted in the US) will without any doubt redefine the concept of sovereign immunity under international law. Unsurprisingly, the US$6.6billion arbitral award granted in favour of Process and Industrial Developments Limited has been a subject of debate in the international arbitration community lately. One commentator reportedly stated that “the award is an example of claimants using investor-state dispute settlement to reap massive returns for relatively insignificant investments, notwithstanding that the case arose from a contract rather than an investment treaty”. Wemimo Ogunde & Co, in its latest article, explores the question of whether Nigeria as a sovereign nation can be sued in foreign courts or whether the English or US courts are indeed crossing the line and should have no jurisdiction over Nigeria. Coincidentally, this is the same question Nigeria will have to answer in in the US and English courts in the next few weeks to save the country from another financial disaster.

FACTS OF THE CASE: On January 11^th 2010, a BVI incorporated company, Process and Development Limited (hereinafter referred to as “P&ID”) and the Federal Ministry of Petroleum Resources of the Federal Republic of Nigeria (hereinafter referred to as “Nigeria”) entered into a 20-year Gas Supply and Processing Agreement (GSPA). Under the GSPA, Nigeria was to supply fixed quantities of Wet Gas to P&ID, who would then process it in a newly-built facility and return it to Nigeria in the form of Lean Gas for generating electricity. P&ID could then sell the by-products of the refinement process (natural gas liquids (NGLs) for their own profit.  However, Nigeria did not make arrangements for the agreed supply of Wet Gas, including inter alia, Nigeria failed to build the necessary pipelines for the supply of the Wet Gas to the project site. Consequently, in March 2013, P&ID treated this failure as a repudiation of the GSPA. By that date P &ID claimed that it had already invested an estimate of about US$40 million in the project, although P&ID never acquired any land for the project nor did it build any facilities to process the Wet Gas. P&ID simply hinged its claim on the fact that Nigeria failed to meet its obligations to supply Wet Gas or complete construction of pipelines for the transportation of the Wet Gas to the project site. As a result, P & ID argued that these failures on the part of Nigeria led to the collapse of the project, costing P &ID 20 years’ profits it would have made from the sale of natural gas liquids (NGLs).

After series of failed negotiation attempts, P&ID submitted a request for arbitration in August 2012 against the Federal Republic of Nigeria and the Federal Ministry of Petroleum Resources of the Federal Republic of Nigeria in London. The GSPA had provided for disputes to be resolved through ad-hoc arbitration under the Nigerian Arbitration and Conciliation Act 2004, Laws of the Federal Republic of Nigeria CAP A18 2004, with the ‘venue’ of the arbitration to be London or “anywhere else agreed between the parties”. Nigeria initially sought to challenge the jurisdiction of the ad-hoc arbitral tribunal as well as the venue of the arbitration arguing that the proper venue ought to have been Nigeria. However, on July 3^rd 2014, the three-member arbitration panel chaired by a retired British Judge Lord Hoffmann, with Bayo Ojo SAN representing Nigeria and Sir Anthony Evans QC representing P&ID found out that it had jurisdiction to decide the following: whether it had jurisdiction to hear the matter; the capacity of the Federal Ministry of Petroleum Resources to enter into the GSPA on behalf of Nigeria; and the validity of the GSPA, heavily relying on the fact that P&ID (as the claimant) was incorporated in the British Islands, rather than Nigeria. The ad-hoc arbitral tribunal found that it had jurisdiction under the United Kingdom’s Arbitration Act 1996 to hear the matter; that the Federal Ministry of Petroleum Resources had the authority to enter into the GSPA; and that the GSPA was valid between the parties.  Thereafter on July 17^th 2015, the arbitral tribunal found that Nigeria failed to satisfy its obligations under GSPA and that P&ID was entitled to damages (“liability award”).

In December 2015, Nigeria applied to the Commercial Court in London to set aside the liability award, but the Court dismissed Nigeria’s application in February 2016, finding that the application had been filed more than four (4) months after the statutory period allowed for such applications and that the grounds raised by Nigeria in its application had no merit. Refusing to accept this, Nigeria quickly turned to the Federal High Court of Nigeria, asking it to set aside the liability award.  The Nigerian court duly obliged and in April 2016, it issued an order “setting aside and/or remitting for further consideration all or part” of the liability award on the grounds that the seat of arbitration is Nigeria and the reference to ‘venue’ in the arbitration clause of the GSPA is not definitive of seat.

Following the Nigerian ruling, Lord Hoffmann told the parties that the Federal High Court had no jurisdiction to annul the liability award and that the case would proceed to the ‘quantum phase’ – where the amount to be paid by the losing party is determined.  On January 31^st 2017, the arbitral tribunal, in a majority decision, issued the final award, granting P&ID damages in the sum of a staggering US$6.6 billion. It arrived at this amount by calculating the present value of the 20-year income P &ID would have received for the sale of the NGLs, minus capital and operating expenditures it would have incurred in the course of building and running the facility for processing the Wet Gas.  However, Bayo Ojo SAN dissented on the basis that P&ID ought to have cut its loss and ‘cannot sit and fold its hands for twenty years expecting a windfall’ from the Nigerian Government.  He also said the arbitral tribunal had failed to make allowance for the possibility that operations would have been disrupted by militants in the Niger Delta. Thus, in his carefully considered opinion, P&ID was entitled to damages for three years of operation and therefore should have been awarded no more than US$250 million. There was no evidence that P&ID spent any money on the project beyond registering a company in Nigeria. P &ID claimed it had spent US$40 million on the project but Nigeria did not challenge this assertion and as such the arbitral tribunal accepted it as a fact. Furthermore, the award was to accumulate interest at the rate of 7 % per year, working out at US$1.3 million per day. As of the date of this article, the total liability thus stands at approximately US$9billion as the penalty has been calculated from 2013.

On March 16^th 2018, P & ID filed a petition against Nigeria before the United States District Court for the District of Columbia (Washington DC) praying the court to confirm the final arbitral award of US$6.6billion granted by the arbitral tribunal plus US$2.3 billion in interest which had accrued since 2013 bringing the total amount to about US$9 billion pursuant to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Award. However, Nigeria moved to dismiss the petition on the basis that the US District Court lacked jurisdiction to hear the petition under the Foreign Sovereign Immunities Act 28 U.S.C. § 1604 which allowed US courts to hear cases against sovereign states only in limited circumstances to which P&ID objected. Upon hearing the motions of both parties, the US District Court ordered Nigeria to file a response to the petition and should include all jurisdictional and substantive defences (“Scheduling Order”). Rather than comply with the Scheduling Order, Nigeria appealed, contending that the US District Court’s Order abrogated its sovereign immunity and that it is entitled to a definitive jurisdictional decision before briefing the merits of its defence. On October 9^th 2018, the US District Court stayed proceedings because the appeal at the US Circuit Court of Appeal divested it of jurisdiction. P&ID moved to lift the stay of proceedings praying the US District Court to re-assert jurisdiction by certifying the appeal as invalid or frivolous but the motion was denied on November 1^st, 2018. The case was scheduled to come up for hearing at the US Circuit Court of Appeal sometime on February 15^th 2019 but was adjourned to May 2019.

In the same March 2018, P &ID applied to the English court to enforce the award and was granted the permission by Justice Cockerill to serve the application on Nigeria through diplomatic channels. Nigeria was required to file an acknowledgement of service by mid-August 2018 but failed to do so, and also missed a further deadline for the filing of any written evidence on which it intended to rely in response to the enforcement application. Nigeria only filed an acknowledgement in October 2018, shortly after retaining an English counsel. Upon hearing the submissions of both parties, Bryan J granted the relief extending the time in which Nigeria may file its defence to the enforcement application. However, Bryan J ruled that Nigeria’s failure to acknowledge service was “serious and significant” and he did not believe the fact that Nigeria was a sovereign nation had any “real weight” in the present context of the case, stating that Nigeria “is a litigant like any other litigant”. However, he considered the size of the arbitral award and its potential impact on the Nigerian citizens and taxpayers in granting the relief.  Bryan J expressed no views on the merits of Nigeria’s defences at the time of the granting the relief.  Nigeria is due to file its written submission in response to the enforcement application.

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