‘lying with Numbers’ in International Arbitration against States

In late 2023, the High Court of Justice in London ruled that the award in the arbitration case Process & Industrial Developments (P&ID) Limited v Nigerian Ministry of Petroleum, at that point worth in excess of US$11 billion,¹ should be set aside on the grounds that it had been obtained through ‘the most severe abuses of the arbitral process’,² in the form of perjured explanations as to how the contract underlying the dispute had come about, the continuous bribery of a key witness, and the use by claimant of privileged documents and the concealment thereof from respondent’s counsel. Although it was the corruption aspect of the case that captured public attention, the P&ID judgment also laid bare another issue which, while involving no illegality per se, had equally grave implications; to wit, just how easy it is in international arbitration—whether treaty-based Investor–State Dispute Settlement (ISDS) or commercial arbitration—to leverage the weak points of this justice-for-profit ecosystem³ to advance surreal claims grounded upon fantasy valuations, with a view to shaking down state parties for colossal sums bearing no relationship to any recognizable business reality.

In the P&ID v Nigeria arbitration, for instance, the tribunal accepted that the Nigerian government had anticipatedly repudiated its obligations to perform under a 20-year gas supply contract, whereas P&ID ‘had already done 90% of the engineering work … and had already acquired the necessary technology licences … had already obtained the necessary finance … [and] had carried out the necessary studies to ensure that there was a suitable gas source in the area’⁴ with the result that, as the claimant’s quantum expert put it, ‘the project had been developed to such an extent that it was ready for an EPC [Engineering, procurement, and construction] tender’.⁵ The tribunal therefore awarded as damages ‘the value of the stream of net profit which P&ID would have made if the Government had performed the contract according to its terms’, calculated in accordance with a discounted cash flow (DCF) model put together by claimant’s quantum expert, who noted ‘that he had found the P&ID materials “extremely helpful”’.⁶ The tribunal made it a point to reject a submission that claimant’s quantum expert had ‘had inadequate material upon which to arrive at his estimate’.⁷

The picture that emerged from the High Court proceedings was radically different: P&ID had never been anywhere ready to perform, and a P&ID expert witness confirmed that the extent of the company’s preparatory work amounted to no more than one crude hand-drawn sketch.⁸ And as for the ‘materials’ underlying the DCF model, it turned out that ‘[t]he only contemporaneous document relied upon by BRG [claimant’s quantum experts Berkeley Research Group] for its assessment of loss was the presentation given … to the MPR [Ministry of Petroleum Resources], which (mis)represented that P&ID was ready to perform’⁹ and, in any case, ran to the whole of two pages and contained only high-level (fictional) figures.

The degree to which the P&ID tribunal’s determinations were at variance with the true facts, together with a keen awareness of “how readily the outcome [of Nigeria’s challenge to the award] could have been different”,¹⁰ prompted the court to suggest that those involved in international arbitration might wish

to consider whether the arbitration process, which is of outstanding importance and value in the world, needs further attention where the value involved is so large and where a state is involved [… lest] arbitration as a process becomes less reliable, less able to find difficult but important new legal ground, and more vulnerable to fraud.¹¹

This suggestion has been greeted without much enthusiasm by the international arbitration community at large, however, and the sheer egregiousness of abuse of the arbitral process which this case put in evidence has been cited as a good reason why not too much should be read into it: ‘[b]y any standards, the facts of P&ID are extreme. Is it right that such an extreme case should lead to questions being asked of the long-established and well-trusted system of arbitration?’¹²

The answer to this question is ‘yes’, because the notion that ‘[i]t is best that P&ID …[be] viewed as an exceptional case’¹³ is untenable in so far as valuation matters are concerned. The sole factor which makes P&ID v Nigeria exceptional in this regard is that the factual and evidentiary vacuum at the heart of claimant’s quantum submissions was laid bare for all to see. But this award is but one name in a list of controversial cases where arbitration tribunals, faced with fantasy claims as unsubstantiated as those in P&ID v Nigeria, have also accepted DCF valuation for projects which are yet to be built or reach operational status (despite the long line of authority against using DCF for projects with no track record of profitability, grounded on the judicial principle of not granting compensation for damages that are too speculative or uncertain).¹⁴

Taken together, these cases are a testament to the considerable success that ‘the new industry of testifying quantum experts [who] earn their keep, [by] propounding detailed analyses that many lawyers and tribunals are simply untrained to digest’¹⁵ has had in turning this digestive inadequacy of lawyers and tribunals into the cornerstone of a lucrative rent-seeking praxis predicated on how easy it is for technical experts to ‘fudge data or deliberately misrepresent the truth through technical manipulation of data or models’ (ie, what Martin Wachs would call to ‘lie with numbers’).¹⁶ In other walks of life where the input of technical experts is sought because ‘it is necessary to support one's position with facts and figures in order to be convincing’¹⁷, the threat of lawsuits or criminal prosecution¹⁸ may inhibit lying with numbers (even if only at the margins), but these inhibitors are lacking in international arbitration. For this reason, in international arbitration proceedings, lying with numbers has been getting increasingly out of hand, as evidenced by the steady rise in the magnitude of arbitral awards¹⁹ This trend has sobering implications for states which might find themselves hauled before an arbitral tribunal,²⁰ not least because the prospects for improvement are remote, and overall standards of candour in valuation are likely to drop even further as technical experts who are adept at playing this rent-seeking game prosper at the expense of those who are not.