Nigeria: For the Record - Summary of Facts On U.S.$9.6bn P&ID Liability

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2 September 2019
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The above-mentioned arbitration ($9.6bn UK Court Award) was commenced against the Ministry of Petroleum by Messrs Process & Industrial Development (P&ID), a limited liability company with which the Ministry of Petroleum signed a Definite Agreement dated 11th January 2010 for Accelerated Gas Development in OML 123 and 67 for a period of 20 years.

In the year 2009, the Federal Government of Nigeria signed a Definite Agreement for Accelerated Development Policy with eight (8) companies, one of which was the Process & Industrial Development company (P&ID).

Following the inability of the parties to implement the Agreement as envisaged, P&ID commenced the above arbitration initially claiming the sum of US$1.9 Billion against the ministry of Petroleum, and thereafter increased its claim to US$5.9Billion and has now recently submitted a final claim of US$8.1Billion.

The former Honourable Attorney General of the Federation (Adoke SAN) engaged the services of Olasupo Shasore, SAN, of Twenty Marina Solicitors LLP to represent the Federal Government in the matter. Mr Shasore raised a preliminary objection challenging the competence of the action which was overruled by the arbitration Tribunal in its ruling of 3rd July 2014. The Ministry of Petroleum Resources also engaged the services of United Kingdom (UK) based law firm, Stephenson Harwood, to apply for an extension of time within which to the Federal Government can challenge the arbitration award dated July 2014 in the UK.

On the advice of the former Honourable Attorney General of the Federation, the Federal Government opted for an amicable settlement with P&ID. The proposed settlement broke down because the settlement could not be reached before the time for a report of settlement elapsed, therefore proceedings resumed at the Tribunal for determination.

In 2014 the Tribunal rendered a partial award wherein it ruled on the preliminary issues and held that it has jurisdiction in the matter that the seat of arbitration is London which is in line with the contract between the parties.

The Nigerian Counsel (Mr Olasupo Shaore) in reaction, engaged the UK Law Firm of Stephenson Harwood LLP to set aside the award on liability in the UK but the court dismissed the application for setting aside on the grounds that the application was filed Four (4) months after the expiry of the deadline of such challenges and the grounds for appeal had no merits.

Mr Shasore applied two weeks later to the Federal High Court in Nigeria, which issued a 3-page order in 2016 setting aside and/or remitting for further consideration or part of the liability award. By this time, the tribunal had already issued a procedural order affirming London as the seat of arbitration and further stated that the failure of Federal Government to satisfy its contractual obligation constituted a repudiation of the 2010 agreement and adjourned its proceedings for hearing on Quantum of damage.

After the hearing on liability, wherein the Tribunal gave a partial final award holding the Ministry of Petroleum Resources (MPR) liable in breach of the contract, MPR forwarded the case file to the HAGF/MJ to take over the matter for effective handling. Upon taking over the case, Chief Bolaji Ayorinde, SAN was engaged by the Honourable Attorney General of the Federation (HAGF) in 2016 to handle the hearing on Quantum of damages after the Tribunal had found the FGN liable for damages. Upstream Commercial Advisory Limited was also engaged as a Federal Government Forensic Expert.

In its final award on 31st January 2017 but released on 10th February 2017 the Tribunal awarded the claimant the sum of USD6, 597Billion plus interest at the rate of 7% from 20th March 2013. This award represented the present value of the 20years income P & ID would have received for the sale of the Natural Gas Liquid (NGL), minus capital and operating expenditures the company would have incurred in the course of building and running the facility. The only dissenting opinion on the award was from Chief Bayo Ojo (one of the arbitrators) who opined that P & ID ought to have mitigated its loss and cannot sit and fold its arms for 20 years expecting a windfall from the government. Therefore, P & ID was only entitled to damages for 3years of operation and should, therefore, receive only the sum of USD250Million. As at date, the total sum being owed to P & ID plus interest is above USD8.4Billion.

Upon being served with the final award in February 2017, the HAGF on 17th March 2017 sent a letter to the Vice President (VP) suggesting recommendations that will resolve the situation on the matter. The Vice President, on 18th April 2017, approved the recommendations of the HAGF which include the negotiation of the award with the P & ID. Based on the VP's approval, the HAGF and Honourable Minister of State for Petroleum Resources (HMSPR) and their delegation along with FGN counsel - Chief Bolaji Ayorinde SAN, on 16th May 2017, met with representatives of P & ID and its counsel to negotiate the award.

The negotiation meeting was very successful given that the FGN team was able to negotiate the award from USD8.4Billion to USD600Million on the following terms:

USD100Million will be paid to P & ID within 14 days by FGN after the execution of the Stay of Enforcement of Award Agreement.

The outstanding sum (USD500Million) will be paid through an asset that will be determined by the MPR.

The P & ID forwarded a draft Stay of Enforcement Agreement through the Federal Government counsel (B. Ayorinde SAN) which in turn was forwarded to the MPR for necessary action. The reason for the foregoing decision was arrived at, considering the fact that the MPR was supposed to make available the money and assets mentioned in the negotiation.

MPR forwarded its comments to the P & ID which was totally rejected on the ground that what was agreed on to be executed was a Draft Stay of Enforcement Agreement and not a Settlement Agreement as proposed by the Federal Government. Based on the rejection a letter was written by the HAGF on 3rd November 2017 to the VP seeking approval to re-negotiate the award with the P & ID (page 81). The approval of the VP was received on 7th December 2017 and the same was communicated to HMSPR and FGN counsel.

FGN counsel responded on 19th February 2018 stating that FGN's request to re-negotiate the award was communicated to the P & ID which appears no longer interested in the negotiated settlement arrived at on 16th May 2017. He further stated that the P & ID had proceeded to instruct its counsel to approach the court without further notice to FGN to recover the judgment debt and would only consider a pure settlement of the award.

The P & ID further proposed another option as follows:

FGN should accept service of court processes in respect of the enforcement proceedings;

FGN, upon acceptance of the court processes, should make a substantial down payment against the outstanding sums due under the award, and in return, P & ID would agree to a temporary stay of such court proceedings to allow for a chance for a full resolution of the matter.

FURTHER DEVELOPMENT

The P&ID in April 2018 began enforcement proceedings in the United States of America against the MPR and FGN and it now claiming an amount above US$9Billion.

In response, the HAGF engaged the American law firm of Curtis, Mallet-Prevost, Colt & Mosle LLP to represent the interests of the Federal Government of Nigeria and Ministry of Petroleum Resources with regards to the Arbitral Award Enforcement Proceedings involving Process and Industrial Development (P & ID) and ensure Federal Government is diligently defended.

In the US proceedings, the Petitioner (P&ID) had filed for entry of default on 4th June 2018 which was entered as a clerk's entry of default on 5th June 2018. It is however noted, that the Clerk's entry of default is not a default judgement but a mere notice of an application for a default judgement.

In response to the Petitioners application for default judgement, the FGN Counsel (Law Firm) on 12 June 2018 filed a motion to set aside the clerk's entry of default for defective service which was conceded to by the Petitioner (P&ID) and it applied to the court to cure the deficiency by serving a fresh process on the Ministry of Foreign Affairs and Ministry of Petroleum Resources through courier or normal mail.

The Law Firm engaged in discussion with the P&ID Counsel (Kobre& KIM LLP) and proposed that a meeting should be held with the P&ID Counsel and Federal Government delegation so as to discuss the settlement of the matter.

The FGN proposed 12 and 13th July 2018 for the meeting with the P&ID counsel in New York with was approved by the P&ID Counsel and Mr President who also directed the following with respect to the meeting and the matter as a whole.,

On 26 June 2018, Mr President directed as follows:

The Honourable Minister of State for Petroleum Resources (HMSPR) and the Honourable Attorney General of the Federation (HAGF) to ensure strong efforts are made by the Federal Government engaged Solicitor, Curtis, Mallet-Prevost, Colt & Mosle, to seek ways of protecting the interest of the Federal Government in enforcement proceedings.

The HMSPR and HAGF to reopen negotiations with P&ID, with a view to arriving at a settlement in the neighbourhood of $250million in line with the recommendation/dissenting view of the Nigerian appointed arbitrator (Chief BayoOjo). The settlement could be in the form of cash and Marginal Oil and Gas Field or cash only.

The HMSPR and HAGF to submit the draft settlement Agreement with P&ID for the President's consideration before it is finalized.

The Honourable Minister of Finance to pay the sum of $100million into an escrow account to indicate the seriousness of the government to negotiate a settlement. However, no amount should be paid out of the escrow account until Mr President has approved the settlement Agreement.

The HMSPR and HAGF to provide all the necessary information, documents and support to the Economic and Financial Crimes Commission to enable a thorough investigation of the circumstances surrounding the Agreement and the subsequent events.

The Group Managing Director of NNPC to submit a comprehensive dossier to the President on the role of NNPC in the execution and failure of the Agreement.

The HAGF to urgently review the lapses in the Agreement with P&ID, which led to the award, and recommend how this could be avoided in the future for the President's consideration and further directives.

The Director-General National Intelligence Agency (NIA) to investigate the company P&ID with a view to uncovering the identities of all the promoters, directors and shareholders of the firm. The HMSPR and HAGF to provide all the necessary background information and documents to the NIA.

REPORT ON SETTLEMENT NEGOTIATION BETWEEN P & ID AND FGN DELEGATION OF 12TH AND 13TH JULY, 2018

Sequel to the above-said directive/approval of Mr President, the Federal Government (FGN) delegation were in New York, USA to meet with the Counsel to P & ID (Kobre& Kim LLP) between 12 and 13 of July 2018 to discuss the settlement of the matter.

Prior to the meeting with the P & ID Counsel on the 13 July, 2018, the FGN delegation had a meeting with the FGN Counsel handling the matter - Messrs Curtis, Mallet-Prevost, Colt & Mosle LLP on the 12 July, 2018 to discuss the strategies of proceeding with the settlement with the P&ID.

MEETING OF 13 JULY, 2018 WITH P&ID COUNSEL (MESSRS KOBRE & KIM LLP).

P & ID'S POSITION:

The litigation efforts to enforce the award in the United States by P & ID had by this been subjected to third party funding. The implication, therefore, is that whilst there still exists a desire for a settlement, the settlement proposals by the Nigerian government would now need to be significantly higher than the settlement sum proposed in May 2017 by the government at the settlement meetings in London.

Further, P & ID was of the opinion that the settlement offer by the government in May 2017 at the settlement meetings in London was not mutually agreed by the parties and does not represent the collective intention of the parties. P & ID was no longer looking to accept marginal field assets as part of the settlement but would rather expect monetary payments.

P & ID would be looking for a sum in excess of USD2Billion in the settlement of the claim and may consider a stand-still agreement backed by a part payment and specific arrangements on payment of the balance.

NIGERIA'S POSITION AT THE MEETING

Nigeria is favourably disposed to a settlement of the dispute at a reasonable sum and has secured the approval of the government thereon.

The Nigerian government would not consider a stand-still agreement, but would rather favour payment of a reasonable sum in full and final satisfaction of the claim.

The government would only consider monetary payments to P & ID, and in this regard offered a sum of USD250Million (Two Hundred and Fifty Million US Dollars) to P & ID which was rejected by the P&ID.

STATUS OF SETTLEMENT NEGOTIATIONS

The offer of USD250,000,000.00 (Two Hundred and Fifty Million US Dollars) made by the Nigerian Government was rejected by P & ID.

FURTHER ACTION BY P&ID

After the breakdown of negotiations, the P$ID continued with the enforcement action and simultaneously filed an action in the United Kingdom (UK) court for the recognition and enforcement of the arbitral award in the UK.

ACTION TAKEN BY THE FGN IN RESPECT OF THE RECOGNITION AND ENFORCEMENT IN THE USA.

The FGN (through it Counsel) challenged the District Court's jurisdiction in the United States, urging the District Court to dismiss P&ID's petition. The position of the FGN in the United States proceedings has been to resist enforcement of the award on the basis that Nigeria as a sovereign state has an absolute right to obtain an authoritative determination of its sovereign immunity. The FGN demanded that the jurisdictional issue must be conclusively resolved before Nigeria may be required to litigate the merits of P&ID's petition.

P&ID challenged Nigeria's position urging the District Court to direct Nigeria to file both its jurisdiction and merit defenses as a consolidated defense so the proceedings may be disposed by the District Court summarily.

The FGN, however, pursued the validity of its jurisdictional defense as a preliminary matter which must be conclusively resolved prior to any consideration of the merit argument up to the Court of Appeal.

In a ruling on 9 October 2018, the District Court granted a stay of proceedings pending a determination of the appeal.

P&ID has also subsequently filed motions to have Nigeria's appeal certified as frivolous and to have proceedings in the District Court continue pending determination of the appeal at the Court of Appeal.

On 1st November 2018, the US District Court issued a decision in favour of FGN denying P & ID's further attempt to certify Nigeria's appeal as frivolous and denied P&ID's attempt to lift the stay of proceedings.

On 15 February 2019, the Court of Appeal issued a decision in favour of FGN by dismissing P&ID's motion requesting the court to dismiss Nigeria's appeal for lack of jurisdiction or to summarily affirm the scheduling order of the District Court.

The proceedings, therefore, are currently on-going in the United States and the FGN will ensure that its interest and that of the people of Nigeria are vigorously defended.

THE HEARING IN THE UK COMMERCIAL COURT.

The scheduled date of 21st of May 2019, which was for the hearing on the merits of the application for permission to enforce over $6.6 billion arbitration award (the value of which has increased with interest to over $9 billion) by P & ID against the FRN was adjourned at the instance of the UK Commercial Court due to "Judicial Availability" to 14th June, 2019.

In defending the merits of the Award, FGN also relied on expert reports analysing the damages given to the P&ID wherein it stated amongst others that the damages were clearly unreasonable, manifestly excessive, exorbitant and went far beyond any legitimate protection of the commercial interest of the P&ID.

On 16 August, 2019, the UK Commercial Court recognised the Arbitral Award. However, the enforcement of the award cannot take place immediately because the Judge in the UK Court ordered that enforcement can only begin after a further hearing on the matter and a date is yet to be fixed for that. The date will most likely be after the court vacation in September.

NOTATION

It must be placed on record that the Federal Government strongly views with serious concerns, the underhanded manner by which the negotiation, signing, and formation of the contract was carried out by some vested interest in the past administration which it believes was in connivance with their local and international conspirators all in a bid to inflict grave economic adversity on the Federal Republic of Nigeria and the good people of Nigeria.

It is premised on the above and in an attempt to unravel the circumstances surrounding the entire transaction the Honourable Attorney General of the Federation, with the approval of Mr President of 26 June 2019, requested the Economic and Financial Crimes Commission (EFCC), the National Intelligence Agency (NIA) and the Inspector General of Police (IGP) to conduct a thorough investigation into the company, the circumstances surrounding the agreement and the subsequent event which includes commencing a full-scale criminal investigation.

The FGN Counsel (Curtis) has been directed to seek for a Stay of Execution of Judgement while at the same time appeal against the decision of the English Court.

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