Process & Industrial Developments Ltd (a BVI corporation) v The Federal Republic of Nigeria

Hearing date: 30 April 2024

Approved Judgment

This judgment was handed down remotely at 10.30am on 12 July 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

This is a rolled-up application for permission to appeal, with appeal to follow if permission is granted, against the decision of Mr. Justice Robin Knowles CBE (the “Judge”), in relation to the currency in which an order for costs (the “Costs Order”) was made, against which the Judge refused permission to appeal.

The Costs Order and refusal of permission to appeal were made at the conclusion of a successful application by the Federal Republic of Nigeria (“Nigeria”) under section 68 of the Arbitration Act 1996 (“section 68” and the “ Arbitration Act”) to set aside two arbitration awards (the “Awards”) in favour of Process & Industrial Developments Limited (“P&ID”).

There are two issues before this Court. The first issue is whether section 68(4) of the Arbitration Act deprives this Court of jurisdiction to hear P&ID's appeal. Section 68(4) provides,

“The leave of the court is required for any appeal from a decision of the court under this section.”

The second issue (which is only reached if this Court has jurisdiction and grants permission to appeal) is whether the Judge was right to order P&ID to pay Nigeria's costs in sterling. Although Nigeria was billed by its English lawyers in sterling, and paid them in sterling, P&ID contends that Nigeria funded such payments by exchanging naira from its consolidated revenue fund, so that the Costs Order should have been in naira.

The issue is of some financial consequence, because the naira depreciated significantly against sterling in the period between Nigeria's payments to its lawyers and the making of the Costs Order. Nigeria's legal fees and disbursements are said to have amounted to around £43 million. P&ID asserts that payment of such fees and disbursements at the relevant times would have cost Nigeria a total of about 23 billion naira; but if P&ID is required to pay £43 million in costs now, that could be exchanged by Nigeria at the current rate to about 76 billion naira.

The background

The Judge's Costs Order was made during a hearing on 8 December 2023 dealing with a number of consequential matters following his earlier substantive judgment on Nigeria's application pursuant to section 68: see [2023] EWHC 2638 (Comm) (the “section 68 Judgment”).

In the section 68 Judgment, the Judge decided to set aside the two Awards that had been made in favour of P&ID in 2016 and 2017 by an arbitral tribunal comprising Lord Hoffmann, Sir Anthony Evans and Chief Bayo Ojo SAN. The Awards were for damages for repudiatory breach of a contract for the construction of a gas processing facility in Nigeria, and were for a total of US$6.6 billion. The Judge found that the Awards had been obtained by fraud or procured in a way that was contrary to public policy within the meaning of section 68(2)(g). The specific findings by the Judge were that there had been bribery of a legal adviser at the Nigerian ministry that had awarded the contract to P&ID; that there was a failure to disclose the bribery in the arbitration that amounted to perjury; and that P&ID had been provided with a significant number of Nigeria's confidential internal and privileged documents during the arbitration.

At the consequentials hearing, the Judge gave a ruling ordering P&ID to pay Nigeria's costs of and occasioned by the proceedings under section 68 to be assessed on the standard basis if not agreed. The Judge then heard argument on the currency in which such costs should be paid.

Nigeria's argument was simple. It contended that it had instructed English solicitors in relation to litigation in England, had been invoiced by them in sterling, and had paid the bills in sterling. It therefore contended that in accordance with the indemnity principle, the order for payment of its costs should be in sterling.

In opposition, P&ID contended that the purpose of an award of costs was to compensate Nigeria for its losses sustained by reason of paying the costs of the proceedings under section 68. It relied upon the analysis of John Kimbell QC (sitting as a Deputy High Court Judge) in Cathay Pacific Airlines v Lufthansa [2019] EWHC 715 (Ch) (“ Cathay Pacific”) and contended that Nigeria had in reality suffered such losses in naira because it could be presumed to have taken naira from its central government funds and converted the naira into sterling to fund the payment of its lawyers' bills.

In that regard, P&ID relied upon a letter dated 23 November 2023 from Nigeria's solicitors that stated,

“…Our client has paid invoices relating to its costs in these proceedings on a regular basis since the outset of the proceedings. As the Federal Republic of Nigeria, it is self-evident that our client primarily transacts in Naira (and, indeed, we understand it has regularly exchanged Naira for Sterling on the foreign exchange market to discharge costs liabilities in relation to these proceedings) …”

In addition, P&ID's skeleton argument before the Judge asserted that,

“Nigeria's National Assembly approves its budget and appropriates funds in Naira, and Article 80 of Nigeria's Constitution requires that “all revenues or other moneys raised or received by the Federation… shall be paid into and form one Consolidated Revenue Fund of the Federation”. It should be inferred that it is from this Consolidated Revenue Fund, denominated in Naira, that Nigeria must have paid its costs, and that any costs award it receives will likewise be paid back into this same fund.”

Nigeria's counsel did not contest those assertions.

In his ruling on the currency point, the Judge referred briefly to the court's general discretion in relation to costs under CPR 44.2 and then stated,

“4. I have had the advantage of argument from Mr. Milner KC for P&ID, which presses for an approach that would treat costs in the same way as damages might be treated or an indemnity granted by a contract. On one view of the case of Cathay Pacific, the learned deputy judge found a point of comparison between the costs jurisdiction and discretion, and the approach where there is an indemnity in a contract. I am not able to accept that that parallel is sound for present purposes. The word “indemnity” features in the phrase “indemnity principle” when one is dealing with costs, but its purpose there is to describe the objective of preventing a successful party recovering a sum in excess of their liability to their own solicitor.

5. In the present case, if costs had been incurred in naira, then this court in the exercise of its discretion might have found more that favoured the argument addressed by P&ID. But in the exercise of this court's discretion, the short and neatly expressed proposition from Mr. Ford for Nigeria prevails.”

The Judge also gave further rulings on the applicable rates of interest and the amount of an interim payment on account of costs (£20 million).

The Judge then heard argument on the question of permission to appeal against the order setting aside the Awards under section 68. He reserved judgment, reflecting the fact that it was common ground that if he refused permission, section 68(4) would prevent any appeal being heard. In a subsequent written ruling given on 21 December 2023, the Judge refused permission to appeal.

At the hearing on 8 December 2023, Mr. Milner KC then applied for permission to appeal against the Judge's order that the costs ordered should be paid in sterling, submitting that this was a discrete point of law. The Judge stated,

“Attractively put, if I may say, and thank you for the concision. I am going to decide now to refuse you permission to appeal on that point. So you have that outcome.”

In response, Mr. Milner indicated that he anticipated being instructed to seek permission to appeal to this Court, and asked for a stay of the order for an interim payment on account. The Judge refused that application for a stay and then added,

“I don't know if there is something to think about, whether section 68(4) affects the costs point for appeal purposes, but you can think about that and take the course you are minded to take.”

P&ID subsequently sought permission to appeal from this Court against the currency of the Costs Order. In its statement of objection to the grant of permission under paragraph 19 of CPR Practice Direction 52C, Nigeria contended that section 68(4) deprived this Court of any jurisdiction to hear such an appeal. Accordingly, Males LJ directed that the application for permission to appeal should be heard on a “rolled-up” basis with the appeal to follow if permission was granted. Males LJ also granted a limited stay of the order for an interim payment on terms.

Section 68

The Arbitration Act provides three grounds upon which an arbitral award may be challenged. They are section 67 (substantive jurisdiction), section 68 (serious irregularity) and section 69 (appeal on point of law).

Section 68 provides in material...