EXPLAINER-Nigeria fights back, but threat of $9 bln penalty looms

Published 27/09/2019, 14:12
EXPLAINER-Nigeria fights back, but threat of $9 bln penalty looms

By Libby George

LAGOS, Sept 27 (Reuters) - A British judge has given the

Nigerian government permission to seek to overturn a ruling that

would enable Process and Industrial Developments Ltd (P&ID) to

try to seize some $9 billion in assets over a failed deal.

The British Virgin Islands-based firm, which was set up

solely for a project to build a gas processing plant, initiated

arbitration against Nigeria in 2012 after the deal collapsed.

P&ID spent $40 million on design and feasibility but didn't

construct the plant as the government failed to supply the gas

it was meant to process. In 2017, the arbitration tribunal

awarded P&ID $6.6 billion, plus interest, based on what it could

have earned over two decades.

The award is accruing $1.2 million in interest per day,

backdated to 2013, and is now worth more than $9 billion - some

20% of Nigeria's foreign reserves.

The issue has enraged Nigeria, with President Muhammadu

Buhari calling it a "scam" in a speech at the United Nations.

Cabinet members are demanding patriotic Nigerians band against

the award, while a dozen high-level officials were in London for

a court hearing on Thursday.

WHAT DOES THE RULING MEAN?

In August, a ruling in London converted the arbitration

award to a court judgement - allowing P&ID to try to seize

assets in order to collect it. A British judge on Thursday gave Nigeria permission to seek

to set aside that decision, with a date for an appeal hearing

yet to be decided. Legal experts told Reuters that in order to succeed,

Nigeria's lawyers will have to prove there was an error in the

ruling.

The lawyers on Thursday focused on whether the arbitration

tribunal was allowed to determine that England was the

appropriate seat of the arbitration; the Nigerians argue that

only a court could make such a determination.

They also argue that the award itself was "patently and

hugely excessive."

The judge said he did not support one of Nigeria's

arguments, which said the award itself should not be enforced

because a federal court in Lagos set it aside.

WOULD SETTING ASIDE MAKE THE LIABILITY GO AWAY?

Not exactly. While a successful set aside would make the

award unenforceable in the UK, P&ID is also asking federal

courts in Washington, D.C., to convert the award to a judgement

in U.S. courts. That case, an entirely separate process, is

pending.

The arbitration award itself also allows P&ID to seek to

seize assets in any of the other 160 countries that are part of

the New York Convention - a global pact for the recognition and

enforcement of arbitration awards.

Legal experts said there is a long history of successful

asset seizures using the New York Convention. But other

jurisdictions considering seizure requests could take UK court

rulings into account, which means that if Nigeria succeeds in

its set aside, seizure elsewhere becomes harder.

CAN THE AWARD ITSELF BE OVERTURNED?

Possibly. Global law firm Norton Rose Fulbright noted that

arbitration awards can be overturned based on "public policy

arguments" that hinge on allegations of fraud or corruption.

Nigeria's anti-graft unit, the EFCC, is conducting an

investigation into P&ID, and has charged a former petroleum

ministry lawyer with taking bribes related to the contract. The

former official has pleaded not guilty. It also alleged that a

now-deceased petroleum minister broke the law by signing the

contract without proper approvals and protocol. Last week two Nigerians, who the EFCC said worked for P&ID,

pleaded guilty on its behalf to charges of fraud and tax

evasion. Nigeria's attorney general Abubakar Malami said that gave

Nigeria "a judicial proof of fraud and corruption" and "cogent

ground for setting aside the liability."

P&ID said neither man was a current employee or

representative of the company, and that there was "no evidence

produced, no defence allowed, no charges laid, no due process

followed."

A successful fraud argument is not an easy path.

Simon Sloane of law firm Fieldfisher said the Nigerian

government would need to prove that the contract was not merely

tainted by fraud, but that it was "on its face" unlawful or

fraudulent. Sloane called this an "extremely high hurdle."

Thus far, the Nigerians have not presented evidence against

P&ID in an international forum.

P&ID denied any wrongdoing.

"The Nigerian government knows there was no fraud and the

allegations are merely political theater designed to deflect

attention from its own shortcomings," it said in a statement.

ARE THERE OTHER OPTIONS?

Nigeria could settle with P&ID - a common route and one that

would likely cost the country substantially less than $9

billion.

In 2015, at the end of the term of President Goodluck

Jonathan, P&ID proposed a settlement of $850 million. The Buhari

administration did not take the offer.

Both parties have said they are open to negotiations, but

the government said P&ID had not directly approached it to

initiate talks. Experts said that Thursday's ruling allowing an appeal

significantly strengthened Nigeria's negotiating position.

WHAT IS AT STAKE?

For now, Nigeria's assets are safe; the judge on Thursday

ordered a stay of execution on seizures as long as Nigeria puts

$200 million into a court account with 60 days and pays certain

of P&ID's legal fees within 14 days. If they fail to do so, P&ID

could try to seize assets.

Harry Mantovu QC, who represented Nigeria, said that "even

if P&ID seized assets for a short time, it could be serious."

P&ID could target real estate, bank accounts or any kind of

moveable wealth, but it would have to prove that the property is

unrelated to Nigeria's operations as a sovereign state.

State assets that have any diplomatic function - such as a

commercial property that is also used to issue visas - cannot be

seized.

Mantovu noted that the award represents 2.5% of Nigeria's

gross domestic product and half of its earnings from crude oil

last year.

"It is not going to take an Einstein to conclude that this

would have a massive impact on the economy of Nigeria and the

monetary policy of Nigeria," he said in court.

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