Will judge’s ‘withering attack’ on $11bn arbitration award against Nigeria lead to more interventionist tribunals?

Mr Justice Knowles’ ‘forensic examination’ of case welcomed, but reforming rules for high-value investor state disputes may be hard

Arbitration specialists have been digesting the implications of an explosive High Court judgment which overturned an $11bn award against Nigeria because it was obtained by fraud and went on to suggest the rules for handling high-value investor state disputes are in need of reform. 

Mr Justice Robin Knowles’ judgment was released on Monday (23 October). He accepted Nigeria’s challenge to an award secured by BVI-registered oil and gas company Process and Industrial Development (P&ID) on the basis that it was contrary to public policy within the meaning of section 68 of the Arbitration Act 1996.

Section 68 allows for awards to be challenged due to “serious irregularity”. According to Ben Knowles, chair of Clyde & Co’s global arbitration group and dispute resolution practice, such challenges are very rarely successful. “Being such a rare breed, it will be the destiny of this judgment to be quoted in every arbitral challenge under section 68 as long as the Arbitration Act 1996 remains in force,” he wrote in a commentary on the ruling.

He added: “What is noteworthy is that the judge chose to make what is, in judicial terms, a withering attack on both the work of the tribunal itself, and how tools in the arbitration were not used effectively.”

Headlines in the legal press have been generated by an endnote to the judgment in which Mr Justice Knowles said he would refer a copy to the Solicitors Regulation Authority and Bar Standards Board in relation to the conduct of Seamus Andrew, founding partner of Velitor Law, and barrister Trevor Burke KC, of Three Raymond Buildings, over privileged documents which came into P&ID’s hands during the arbitration proceedings and should have been returned.  

Knowles said their behaviour was governed by “the money they hoped to make” and called for a review of the arbitration process for cases involving large sums of money given the fact that the original tribunal “did what it did with what it had” but was in reality “a shell that got nowhere near the truth”. He warned that without additional safeguards: “The risk is that arbitration as a process becomes less reliable, less able to find difficult but important new legal ground and more vulnerable to fraud.” 

Shaistah Akhtar, who led the Mishcon de Reya team advising Nigeria, described the judgment as a “historic result”, adding: “The Nigerian government’s resolve in pursuing a just outcome led to it uncovering overwhelming evidence of bribery and corruption. We are pleased that the judge recognised the severity of the fraud perpetrated against the people of Nigeria in his judgment, and trust that this landmark decision will deter other potential fraudsters and their backers from exploiting the legal system in the pursuit of monetary gain.”

While it has been suggested the judgment may undermine London’s status as a top arbitration centre, Leigh Crestohl, a partner at specialist international arbitration and litigation law firm Zaiwalla & Co, took the opposite view, saying the ruling “underlined the role of London as the leading venue for the fair and impartial resolution of major international disputes”.

She added: “The decision also illustrates that the English court will not hesitate to investigate allegations that the conduct of a London arbitration was tainted by fraud, and to put matters right where that is proved. The detailed judgment of Mr Justice Knowles, running to 140 pages, demonstrates a forensic analysis of the facts and law and reflects the court’s dedication to achieving justice.” 

R Craig Connal KC, an independent arbitrator who was previously a partner at Pinsent Masons, wrote on LinkedIn that the judgment’s criticism of the process in the arbitration “may not be easy to follow to any helpful conclusion”. 

He noted that while Mr Justice Knowles rejected corruption allegations against Nigeria’s lawyers, the judge cited examples of failings by the country’s legal representatives, experts, politicians and civil servants, undermining its effective participation in the arbitration process.

“The first issue… is whether the approach of any legal process should be impacted by the fact ‘a state’ is involved,” Connal wrote. “The judge seems to suggest it should. So if a government… is not handling something well, that should lead to – what? Bending over to help them? That is where the question becomes challenging to any neutral tribunal – or, I suggest, court.”

He asked: “What interventionist approach resolves a lack of instructions?... How do you ‘fix’ an expert’s failure to do the groundwork?” 

However, he added: “I suggest that the wider question of how far a decision-maker could or should put a sticking plaster on one party's case is worthy of debate. Stripped of the fraud point, if a state makes a mess of a very large dispute should it be for any court or tribunal to resolve that problem?”

Clyde & Co’s Knowles concluded in his commentary: “Whether Mr Justice Knowles’ more interventionist approach will be followed, and whether that approach is restricted to cases where a state is the respondent, only time will tell. But if you are an arbitral tribunal involved in a case where one of the parties is a state, if something doesn’t smell right in the way the case is being handled, you are on notice of the need to proactively make enquiries, failing which Mr Justice Knowles [no relative of mine] will intervene.”

Andrew and Burke, meanwhile, have both issued statements rejecting Mr Justice Knowles’ criticism of them. “I do not accept the criticisms in the judgment concerning Nigeria’s internal legal documents,” Andrew said. “I believe that I acted in accordance with my professional duties, and I am confident that my conduct will in due course be vindicated by my regulator, with whom I shall be cooperating fully.”

Burke said: “I am confident that my conduct will be exonerated by my professional body, with whom I shall cooperate fully.”

In September, arbitration specialists welcomed the England and Wales Law Commission’s proposals for targeted reforms to the Arbitration Act 1996 that recognised “root and branch reform is not needed or wanted”. The publication of the commission’s final report alongside a draft bill followed a lengthy consultation process which led the law reform body to conclude there was a “consensus that the act works well”.

Email your news and story ideas to: news@globallegalpost.com