P&ID: Whether Nigeria is liable under the contract

So, by now most of us must have heard about the P&ID case that prompted the government to raise a legal team and go all the way to London to fight a legal case of juggernaut proportion. Here, I am going to look at the matter from the Nigerian legal perspective and chop it up in order to examine the legal standing of Nigeria as it pertains to the P&ID matter. 

Global attention was recently drawn to the heat generated by the failed contract between P&ID (PROJECTS AND INDUSTRIAL DEVELPMENTS LTD)and the Nigerian government leading to an award of a whopping sum of about $9.6billion. This award was granted by an Arbitration Tribunal in England against Nigeria, which the Queen’s Bench Division of the English Commercial Court adopted as its judgment and granted leave to P&ID to enforce against Nigeria in August of 2018. The award arose from a contract, which P&ID posited that the Nigerian government repudiated. In order to ascertain whether the award against Nigeria was fair and just or not, one may want to first ascertain if there was a contract between P&ID and the Federal Government of Nigeria.

In law, it is said that, ‘to bring a contract into being for the parties to the contract to confer rights and impose liabilities on themselves, there must be mutual assent.’ It is also pertinent to state that the mutual assent of the parties must have the character of being broken down into ‘offer’ and ‘acceptance’. It is a basic tenant of Contract Law, that in addition to having an ‘offer’ and ‘acceptance,’ another essential element of a valid contract is ‘consideration.’ This is so unless we are talking about a contract under seal. In an old case of RANN V. HUGHES (1778) 7 Term Rep. 350,the Court stated:

“The law… supplies no means nor affords any remedy to compel the performance of an agreement made without sufficient consideration: such an agreement is ‘nudum pactum ex quo non oritur action.”

Furthermore, to buttress this rule, in MYDDLETON V. LORD KENYON L2 VES JUN 391 at 408, Lord Loughborough made the point as clear as possible by stating that, “A bargain without a consideration is a contradiction in terms and cannot exist.” Thus, for any Contract to qualify as a legal Contract, there must be the element of ‘Consideration.’

There must also exist in any ‘Contract’ an intention to create legal relationship. The duty of the court is to arrive at the intention of the parties by legal interpretation of the terms of the agreement.

The contract in this particular case was between P&ID and the Federal Government of Nigeria, which was entered into on January 11, 2010. The Contract was for a gas supply and processing agreement.

Under the contract, Nigeria agreed to supply natural gas (wet gas) to P&ID’s production facility over a 20- year period. P&ID, a company based in the British virgin Island agreed to process the wet gas by removing natural gas liquids and return approximately 85% of it to the Federal Government of Nigeria in the form of lean gas. Under the agreement, the lean gas was to be returned at no cost to the Nigerian government. This, essentially, was what the contract was for.

Consequently, upon the agreement, the Nigeria government had the obligation of arranging for the supply of wet gas to the gas processing facility of P&ID, which it intended to build in Cross River State of Nigeria.  The arrangement further required the Nigerian government to construct the necessary pipeline and put in place-facilities for transporting the wet gas to the gas processing facility of P&ID.

According to P&ID, the Nigerian government failed in its obligation under the contract and viewed the failure as a repudiation of the contract.

In March of 2013, P&ID commenced an arbitration action against the government of Nigeria before a London Tribunal. One will want to find out why a contract entered into in Nigeria and to be executed in Nigeria will have London as the seat of the arbitration to resolve disputes arising from the contract as provided by clause 20 of the agreement. The alternative provision ‘or any other place agreed by the parties’ is certainly not helpful to Nigeria, as that requires consent of both parties and when one party disagrees it will be in London. This is why Nigeria failed in its appeal to have the Tribunal sit in Nigeria.  Those who signed the contract on behalf of the Federal Republic of Nigeria at the time should have weighed the disadvantages of having the seat of Tribunal in London when the contract has nothing to do with London or any part of Europe.

From the nature of the contract, the consideration is not clear to a discerning mind. The claim by P&ID before the Tribunal that it invested $40 million in the project is also difficult to be countenanced.

It has not been shown anywhere that P&ID acquired any piece of land in Cross River State as the site for the project. The question that will agitate any reasonable mind is how P&ID invested a colossal sum of $40 million in the project that never saw the light of day?

From the nature of the contract, it can be conveniently argued that P&ID is the party that failed in its obligation of, first, providing a gas processing facility. Nigerian government can only supply natural gas (wet gas) to an existing P&ID production facility and as such there cannot be a breach of the agreement on the part of Nigeria. This is so because Nigeria had not provided any place for P&ID to construct pipelines or put in place facilities for transporting the wet gas.

P&ID was wrong in viewing the failure of the Nigerian government as repudiation of the contract. In simple terms, repudiation means ‘a contracting party’s words or actions that indicate an intention not to perform the contract in the future or a threatened breach of contract.’ In this case it has not been sufficiently shown how Nigeria rejected or renounced its duty or obligation under the contract to evince an intention or indication not to perform the contract.

It appears in the circumstance, P&ID, which failed to perform its obligation by providing land for the gas processing facility in Cross River State, as agreed by the parties, is the one guilty of repudiation of the contract. P&ID’s refusal to perform the acts required by the contract releases Nigeria from its obligation under the contract.

Taking all this into consideration, it is confusing on which grounds the Tribunal considered in awarding the $6.6 billion as damages to P&ID for the breach of contract, with interest at the 7%, commencing from March 20, 2013 until payment is made. One is inclined to agree with the position of the Nigerian government that the damages claimed were not a fair and reasonable consequence of Nigeria’s breach of the agreement because P&ID never commenced building of the gas processing facility. Nigeria is also justified in faulting the measure of estimated expenses and income stream, which P&ID used to calculate the damages claimed.

It is also difficult to agree with the Queen’s Bench Division of the English Commercial Court when the court noted that the damages awarded were purely compensatory and not intended to punish the Nigerian government.

The simple poser is what was P&ID being compensated for? It is also not convincing for the court to confirm that there were not public policy grounds on which the award should not be enforced.

From the facts available, the contract was not meant to succeed but to result into litigation for the benefit of P&ID and it is not farfetched to infer that there are some Nigerian collaborators to the detriment of the Nigerian State and that is what is presently playing out. Without mincing words, one will not hesitate to state that the contract is against public policy, which should be a vitiating factor.

It is agreed that the lean gas would have powered Nigeria’s national electric grid to deliver the much needed power generation to millions of Nigerians. However, because the contract was not meant to see the light of the day, it has become a serious burden on Nigeria and a judgment debt of $9.6 billion has been awarded against Nigeria and is currently hanging. It is safe to state that there is no detriment suffered by P&ID and no benefit enjoyed by Nigeria to justify the award of damages against Nigeria, especially to the extent that it has been.

Unless Brendan Cahill and Michael Quinn who founded Projects and Industrial Developments Ltd (P&ID) know of other hidden provisions in the agreement, it is not clear to the naked eyes how Nigeria became liable under the contract.

The good aspect of it is that Nigeria is a commonwealth country and our law of contract and the English Law of Contract are not radically distinct. Nigeria has lodged an appeal against the decision of the Court and one only hopes that the appellate court takes a deep look at the contractual terms before its verdict.

So, there we go. That is the P&ID case chopped up in two seconds, from my Nigerian legal perspective. As Nigeria fights tooth and nail to protect its legal standing and prove that it was not liable under the contract, let us hope that the Court of Appeal releases Nigeria from this huge and heavy burden of this P&ID (Projects And Industrial Develpments Ltd) against the Federal Republic of Nigeria debacle.

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