Nigeria, P&ID battle at U.S. Court of Appeal


The Nigerian government and a British Virgin Islands-registered company, Process, and Industrial Development (P&ID), are presently locked in a legal tussle over a $10 billion arbitral claim in the United States Court of Appeal.

Documents seen by PREMIUM TIMES showed how the Nigerian government is seeking the reversal of a district court’s denial of Nigeria’s motion to dismiss a petition for lack of jurisdiction based on Nigeria’s sovereign immunity from suit in the United States.

The documents also showed that the controversial British firm, P&ID, is requesting the court to affirm the District Court’s denial of Nigeria’s motion to dismiss the petition.

Last year, a court in the United States ruled against Nigeria’s wish to claim over $10 billion in its dispute with the British Virgin Islands-registered company.

U.S. District Judge Paul Engelmayer in New York granted the hedge fund’s motion, overturning a ruling and quashing subpoenas issued by Nigeria.

Back story

The P&ID saga dates back to January 11, 2010, when the company signed a gas supply and processing agreement with the Ministry of Petroleum Resources on behalf of the Nigerian government.

Under the terms of the agreement, P&ID was to build and operate an Accelerated Gas Development project to be located at Adiabo in Odukpani Local Government Area of Cross River State. The Nigerian government was to source natural gas from oil mining leases (OMLs) 123 and 67 operated by Addax Petroleum and supply to P&ID to refine into fuel suitable for power generation in the country.

However, P&ID alleged that after signing the agreement, the Nigerian government reneged on its obligation after negotiations were opened with the Cross River State government for allocation of land for the project.

The company said the failure to construct the pipeline system to supply the gas frustrated the construction of the gas project, thereby depriving it of the potential benefits from over 20 years’ worth of gas supplies.

It added that attempts to settle out-of-court with the Nigerian government failed.

In August 2012, P&ID served the Nigerian government a Request for Arbitration but Nigeria argued before the tribunal that “the failure of P&ID to acquire the site and build Gas Processing Facilities was a fundamental breach and that no gas could be delivered until this has been done.”

The tribunal ruled that Nigeria’s obligations under Article 6B were not conditional upon P&ID having constructed the gas processing facilities.

TEXEM

In the tribunal’s eventual verdict, the damage suffered by P&ID was the loss of net income the company would have received if the government kept its side of the contract. Two members of the three-man tribunal, Lord Hoffmann and Anthony Evans, held that P&ID’s expenditure and income should have been about $6.597 billion if the GSPA was duly performed by the government.

Both officials said the award should be paid together with interest at the rate of 7 per cent from March 20, 2013.

The other member, who is Nigeria’s former Attorney-General and Minister of Justice, Bayo Ojo, in his minority ruling, said although P&ID was entitled to compensation for the breach, its damages could not have been more than three years from the date of the alleged breach. Apart from being a new company incorporated in 2006, Mr Ojo noted the project could not have started yielding benefits earlier than 2015.

In September 2020, the Nigerian government secured a judgement of a British court to suspend the unfavourable ruling over the scandal. A commercial court in the United Kingdom granted Nigeria’s appeal for a stay of execution of the award of $8.9 billion (about N3.2 trillion) in favour of P&ID.

Opposing Arguments

In its argument, counsels to P&ID argued that the District Court correctly denied Nigeria’s motion to dismiss on the grounds that it had waived immunity by implication.

“The waiver exception to the FSIA applies because Nigeria acceded to the New York Convention and agreed to an arbitration governed by that treaty,” they argued, adding that a foreign state’s sovereign immunity is not absolute.

“Before 1952, the U.S. State Department used to request ‘immunity in all actions against friendly foreign sovereigns,’ but that changed when ‘the State Department announced its adoption of the ‘restrictive’ theory of foreign sovereign immunity’ by the so-called Tate Letter.”

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In another breadth, the company argued that Nigeria offers no persuasive reason for the court to depart from its earlier decision.

In sum, the company said Nigeria implicitly waived jurisdictional immunity because it acceded to the New York Convention and then agreed to arbitrate its dispute in a New York Convention country.

“The District Court correctly applied the well-reasoned decisions of this Circuit and its order should be affirmed accordingly,” the company argued. It added that the Court should also hold that the District Court has jurisdiction under the arbitration exception to the FSIA.

In a counterargument filed on June 11, Nigerian counsels noted that the Court should reverse the district court’s denial of Nigeria’s motion to dismiss for lack of jurisdiction based on Nigeria’s sovereign immunity from suit in the United States.

“Neither exception pressed by P&ID applies,” they argued.

Nigeria did not impliedly waive its sovereign immunity in the United States by agreeing its courts would enforce foreign arbitration awards in Nigeria or by agreeing to arbitrate in England under the laws of Nigeria, they argued.

“Moreover, the arbitration award enforcement exception has no application because P&ID does not have a valid award.

“The Court should therefore reverse the district court, and direct that this action be dismissed in its entirety for lack of jurisdiction.”

PREMIUM TIMES understands that an oral argument has not been scheduled and no date has been fixed for the hearing.

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