Strict Time Limit No Barrier Where Prima Facie Fraud

Speed and finality. Catchwords of arbitral practice. Except, it seems, where there is fraud.

In the long-running dispute concerning supply of gas, the English Court in The Federal Republic of Nigeria v Process & Industrial Developments [2020] EWHC 2379 (Comm), considered an application to set aside an award after the expiry of bringing such challenges under the Arbitration Act.

In short, P&ID obtained an award against Nigeria in July 2015, in the sum of $6.6 billion. The Nigerian government failed to pay the award, leading to the granting of an application to enforce in March 2018. However, it was not until some 21 months late, in December 2019, that Nigeria applied for an extension of time to challenge the award pursuant to sections 67 (jurisdiction) and 68(2)(g) (serious irregularity, including fraud) of the Arbitration Act 1996, despite such challenges usually being time-barred after only 28 days.

In support of the extension application, Nigeria argued that P&ID had perpetrated a massive fraud both before and during the arbitration, including bribes to Nigerian officials, perjured evidence and dishonesty on the part of Nigeria’s own counsel during the proceedings, stating that it was unaware of such fraud at any time during the proceedings.

The court granted Nigeria’s application on the basis that Nigeria had established a prima facie case for P&ID’s fraudulent conduct; it had not failed to investigate the fraud with reasonable diligence; and the principle of fairness ultimately outweighed considerations of (even extreme) delay and finality to proceedings.

The judgment canvasses the well-known cases concerning the factors to be taken into account when considering applications to extend the time to challenge awards including: Terna Bahrain Holding Company WLL v Bin Kamil Al Shamsi [2012] EWHC 3283 (Comm); Nagusina Naviera v Allied Maritime Inc [2002] EWCA Civ 1147; and Aoot Kalmneft v Glencore International AG [2002] 1 Lloyd’s Rep 128. The Court concluded (@274-276):

“The delay in this case is extraordinary and weighs heavily on the side of the balance against an extension. In my view, however, other factors bring it down in favour of an extension.”

“As I have explained, the delay is not in my view the result of a deliberate decision made because of some perceived advantage, and in all the circumstances Nigeria has acted reasonably. Given the strong prima facie case of fraud which I have concluded Nigeria has established, the position is along the lines of that identified in Terna, where Popplewell J identified the substantial injustice an applicant would suffer in respect of the underlying dispute if deprived of the opportunity of making a challenge should an extension of time be refused: Terna Bahrain Holding Company WLL v Bin Kamil Al Shamsi [2012] EWHC 3283 (Comm), [2013] 1 Lloyd’s Rep 86, [33]”

“For the reasons I have given, P&ID has contributed to the delay, and it will not by reason of the delay suffer irremediable prejudice in addition to the mere loss of time if the application is permitted to proceed. Although not a primary factor, fairness in the broadest sense favours an extension in this case.”

Hardwicke’s Michael Levenstein comments:

“Despite Nigeria’s extraordinary delay, one can understand the Court’s inclination to sympathise with its position. If, as the Nigerian government alleged, it had been the victim of an elaborate fraud concerning not only P&ID’s bribery of officials but also its ability to perform the contract, … then its inability to challenge the arbitral award would have drained the government’s coffers of $10 billion … an immense sum of money which instead should have been spent on improving the country’s power grid.”

“That said, the Court’s willingness to do justice in the individual case may foment unintended (and unwelcome) consequences in others. Parties which have lost in arbitration and desperate to avoid complying with adverse awards (the larger the award, the greater their desperation) will be emboldened by this decision to go to greater lengths than before in order to dredge up grounds for challenging unfavourable awards. In circumstances where the grounds for challenge may not be discovered until years after the end of proceedings, one cannot help but ask in the wake of this decision if the principle of finality as enshrined in the Arbitration Act has moved one step closer to becoming an endangered species.”

The decision has given rise to considerable commentary:

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Hong Kong Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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