Authors: Simon Rainey KC, Alexander Uff and Claire Stockford
Mercutio’s curse is apt: no one comes out of the P&ID saga well. Not P&ID, the arbitration claimant who, after securing an award worth over USD 11 billion with interest, has been found to have engaged in widespread corruption, including both with regard to procuring the underlying contract and in obtaining the arbitral award. Not Nigeria, whose conduct as the arbitration respondent demonstrated, in Knowles J’s words, “incompetence and neglect throughout”. Not the arbitrators, with Knowles J remarking that he “struggle[s] to accept what happened in a dispute of this importance and magnitude”. And not the system of international arbitration, in relation to which the Judge expressed the view that the case “touches the reputation of arbitration as a dispute resolution process” and calls for debate and reflection on this.
Will P&ID have implications for international arbitration?
Is P&ID an instance of hard cases making bad law?
If the arbitration was (as the Judge found) tainted throughout by corruption, then undoubtedly the party behind that corruption should not benefit to the tune of some USD 11bn, and the right result has now been reached. Lord Hoffman, chair of the arbitral tribunal in the underlying arbitration, has commented on the “great miasma of dishonesty” that can cloud cases, with the arbitrators deciding them being wholly unaware of what is going on in the background to an arbitration.
By any standards, the facts of P&ID are extreme. Is it right that such an extreme case should lead to questions being asked of the long-established and well-trusted system of arbitration? In his judgment, Knowles J raises questions regarding the system of arbitration after describing the P&ID arbitration as “a shell that got nowhere near the truth”, and expresses a hope that the case would provoke “debate and reflection among the arbitration community, and also among state users of arbitration”. He adds that the case provides “an opportunity to consider whether the arbitration process […] needs further attention where the value involved is so large and where a state is involved”.
The judgment is, perhaps, in places implicitly critical of the tribunal, the crux of the concern being that it had only addressed the arguments put to it and had not taken an interventionist approach even when it was clear that Nigeria was making a poor job of challenging P&ID’s case on quantum. Observing that it “did what it did with what it had” (of which it might be said that it was not to blame for that), the Judge goes on to comment that “the Tribunal took a very traditional approach” and asks “[c]ould and should the Tribunal have been more direct and interventionist when it was so clear throughout the Arbitration that Nigeria’s lawyers were not getting instructions, or when at the quantum hearing Nigeria’s then Leading Counsel […] was failing to put necessary points to experts to test their opinion and Nigeria’s own experts (for whatever reason) had not done the work required?”.
The adversarial system relies heavily on the parties testing the case against them; when that falls down should the tribunal step in, and is that the Tribunal’s role? Should the Tribunal have been more alert in light of the “red flag” that the claimant company lacked experience in building gas processing plants? Is an inquisitorial approach more appropriate in cases where there is corruption, and how should those cases be identified when the respondent is not itself pleading corruption? The answer to these questions is not straightforward. The Judge is clear that a significant miscarriage of justice was narrowly averted, and while a large part of the problem was Nigeria’s consistent failure to defend the arbitration effectively, Knowles J appears also to lay blame on a combination of the arbitral process itself and this very experienced tribunal’s application of it.
A further legacy of the case is that Nigeria’s widespread allegations of corruption triggered an unusually extensive review of the underlying contract and the arbitration and led Knowles J to comment, albeit obiter, on issues of procedure and the merits that arguably lie beyond the scope of review under s. 68. While Knowles J appears to consider that the systemic concerns he raised justified this approach, allegations of fraud should not become a Trojan Horse leading to a review of the merits of an arbitration generally. As well, where Knowles J’s finding that the awards were obtained by fraud is based on material omissions from P&ID’s testimony, this could potentially have repercussions for the finality of arbitration if allegations of untruth or incomplete testimony, or even incompetence by its legal representatives, can be used by a dissatisfied party to have the English court undertake a full-scale review of the arbitration. It is best that P&ID is viewed as an exceptional case.
P&ID will stir debate among many segments of the arbitration community for some time to come, including on the treatment of corruption, representation of States as well as the role of arbitrators. It bears noting however that the system of arbitration has ultimately operated to achieve the right result and that the respondent itself bears a large measure of responsibility for the fact that it did not do so sooner.
An extended version of this article can be found at: https://www.quadrantchambers.com/news/nigeria-v-pid-plague-both-your-houses