Introduction

Black's Law Dictionary1 defines corruption as "a fiduciary's or official's use of a station or office to procure some benefit either personally or for someone else contrary to the right of others; an act carried out with the intent of giving some advantage inconsistent with official duties or the right of others.

Corruption in arbitration may emerge in different forms. The underlying contract which gave rise to the dispute referred to arbitration may have been procured through corrupt practices or it may present itself during the arbitral process, for instance allegations of corruption on the part of the tribunal, witnesses or counsel. This article is focused on the former and issues which may arise during the enforcement of such awards.

In an ideal world, and given the bindingness and finality of arbitral awards, a losing party ought to simply comply with the award. However, this is not always the case. Hence, where the losing party fails to comply with the award, a successful party would have to initiate recognition and enforcement proceedings.2 Recognition and enforcement proceedings may however be delayed, postponed or defeated where the losing party challenges the award or opposes enforcement. Depending on the jurisdiction in which enforcement is sought, awards arising from contracts tainted with corruption may be held to be against public policy and therefore unenforceable.

In addressing the enforceability of awards where it is apparent that the underlying contracts are procured by corruption, this article references key cases involving African States. A summary of the identified cases is provided before delving into critical areas such as (i) the effect of fraudulent contracts on economies (ii) exposition on the position of the New York Convention and the Arbitration and Mediation Act 2023 ("AMA") on enforcement of awards where the underlying contract is tainted with corruption before conclusions are then drawn.

Case Summaries: P & ID v Nigeria; Groupement Santullo Sericom Gabon v Republic of Gabon and BSG Resources Limited (in Administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL v. Republic of Guinea

In the international arbitration community, the cases of P&ID v Nigeria3 ("P&ID Arbitration") and Groupement Santullo Sericom Gabon v Republic of Gabon4 ("GSS Arbitration") garnered considerable attention for different reasons. The former, due to the enormous damages awarded by the tribunal against Nigeria and the latter for the hardline stance taken by the French court (known for its pro-enforcement stance) which led to the annulment of the award. BSG Resources Limited (in Administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL v. Republic of Guinea5 ("BSG Arbitration") on its part is also relevant given the findings of corrupt practices by the tribunal against the investor. These cases represent a growing trend involving investment disputes between private foreign contractors and governments.

The P&ID Arbitration has its genesis in a 20-year gas supply and processing agreement ("GSPA") signed in January 2010 between Process and Industrial Developments Ltd ("P&ID") and the Nigerian government. The contractual arrangement was that Nigeria would supply natural gas ("wet gas") at no cost to P&ID's facility. For its part, P&ID was to construct and operate the gas processing facility. It would process the gas to remove natural gas liquids (which would be retained by P&ID) and return lean gas to Nigeria at no cost, which would be suitable for use in power generation and other purposes.6 By mid-2012, neither party had fulfilled its obligations. P&ID began arbitration proceedings against the Nigerian government for breach of contract, claiming that the government had repudiated the contract by failing to provide "wet" gas for it to process. Five years later, the Tribunal awarded $6.6 Billion exclusive of interest, against the Nigerian government.7 Owing to Nigeria's failure to comply with the award, P&ID filed an application to enforce the award in England. On 16 August 2019, the court granted P&ID's application for enforcement of the award which had increased to US$ 9.6 billion due to the interest on the award. In the wake of this decision, Nigeria sought to set aside the award but had to cross the high hurdle of seeking an extension of time to do so, given that it had 28 days from the date of the award, under the English Arbitration Act 1996, to set aside the award. On September 4, 2020, the English Commercial Court delivered an unprecedented judgment allowing the Nigerian government permission to proceed with its challenge to the then $10 billion arbitral award made against it8. In granting this permission, the court held inter alia that there was a strong prima facie case of bribery involved in procurement of the underlying GSPA contract and in the arbitration proceedings. With respect to corruption in procurement of the contract, the court noted that payments were made to senior officials of Nigeria's Federal Ministry of Petroleum Resources whose positions ensured the approval of the GSPA notwithstanding several deficiencies.9

In the second case, the dispute arose out of a contract for about eleven public infrastructure projects awarded to Groupement Santullo-Sericom Gabon ("GSSG") by the Gabonese government. The contracts were won through an uncompetitive bidding process. The claim against the Gabonese government was brought to the ICC's International Court of Arbitration in 2015 over unpaid fees. In 2019, the ICC awarded the sum of $180 million to GSSG. While Gabon had contended that the contracts were awarded to the claimant through corrupt means, the tribunal rejected these submissions. During the annulment proceedings before the Paris Court of Appeal (the "PCA"), Garbon argued that that the tribunal's decision resulted in upholding and enforcing contracts obtained by corruption, and thus breached international public policy. The PCA found that certain facts and circumstances leading to the award of the project to GSSG consisted of several red flags and indicia ("faisceau d'indices") that were sufficiently "serious, specific, and consistent" to evidence a finding that the relevant tenders had been won by corruption.10 The PCA concluded that the recognition and enforcement of the award in these circumstances would breach international public policy in a "characterized manner" ("de façon caractérisée") and subsequently set aside the award.11

Finally, in the BSG Arbitration, the Claimants had commenced two ICSID arbitration proceedings (subsequently consolidated) against Guinea relating to two iron ore mining areas. In an award delivered on May 18, 2022, the tribunal found that BSG's claims were inadmissible on the basis that the claims related to mining rights that were secured through corrupt practices.12 Similarly, the tribunal found that Guinea's counterclaims were inadmissible on the basis that the President engaged in bribery and corruption in relation to these mining rights.13 Specifically, the Tribunal held that there was evidence that Mamadie Toure (the wife of the President of Guinea when the permits were granted) had directly or indirectly received at least $9.42mn from BSGR between August 2009 and May 2012, of which $5.23mn could be traced through wire transfers and cheques for her services in securing permits.14 The Tribunal also found that "the claimants and some of their associates went to extraordinary lengths to cover up the corruption practices, using intermediaries to bribe third parties or secure their influence, falsifying invoices, using improper accounting techniques, thus rendering payments untraceable, tampering with evidence, and making statements even before the tribunal contrary to the facts with respect to the authenticity of key documents.15

CONTRACTS PROCURED BY CORRUPTION AND ITS IMPACT ON ECONOMIES

The global corruption perception index compiled by Transparency International ranks 180 countries' perceived levels of public sector corruption, scoring on a scale of 0 (highly corrupt) to 100 (very clean)16. In the 2022 edition, Gabon ranks 136th with a score of 29, while Guinea ranks 147th with a score of 25, Nigeria on the other hand ranks 150th with a score of 24. It has been noted by scholars and commentators alike, that should the P&ID award be enforced, it would result in considerable depletion of Nigeria's foreign reserves. As of January 2023, the arbitral award stood at $11.1 billion, and gains $1.3 million every day in interest.17 The arbitral award is equivalent to a third of Nigeria's total annual budget for 2023 and five times its health budget.18

At a macro-economic level, there is ample literature by leading economists on the long-term corrosive impact of corruption on economies.19According to them, corruption distorts resources and market forces leading to misallocation of resources. Country level data from international organizations such as Transparency International, show that corruption decreases economic growth and development.20 In their 2019 paper, Rothstein and Holmberg argue that corruption is consistently linked to lower levels of human development index (HDI), and GDP per capita.21 A survey conducted by Simons & Simons in 2006 highlights the cost of corruption to international investors. A quarter of the respondents to the survey claims that corruption increases their cost of international investment by up to 5% and nearly 8% of respondents claim that corruption costs them as high as 50%.22

ENFORCEMENT AND CHALLENGE OF AWARDS UNDER THE NEW YORK CONVENTION AND ARBITRATION AND MEDIATION ACT, 2023.

The New York Convention, officially known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards was signed in 1958 and entered into force in June 1959. It is the model law for the recognition and enforcement of foreign awards under the aegis of the United Nations Committee on International Trade Law (UNCITRAL). The Convention prescribes in Article 1, that it shall apply to the recognition and enforcement of arbitral awards made in a State other than the State in which it is sought to be enforced. Article 1 also prescribes that the Convention shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought. Without a proper interpretation of Article 1, it would seem that an award made in any state, (even if the originating state was not a party to the New York Convention), would be enforced and recognized by any other state that was a party to the Convention, so long as the award satisfied the basic conditions set down in the Convention.23 However, this is not the case as the Convention allows for two reservations; commercial and reciprocity reservations.24 Basically, it means that States may decide that they would apply the Convention to the recognition and enforcement of awards made only in another contracting state. Also, the State may restrict the application of the Convention to only disputes arising out of legal relationships that are considered of a commercial nature under the laws of that state. In terms of practical application of the provisions of the Convention by judges in a contracting state, beyond signing and ratifying the convention, it is helpful where the provisions are also domesticated in national arbitration legislations. In fact, this is the approach adopted by Nigeria both in the previous arbitration legislation (Arbitration and Conciliation Act 1988) and current arbitration legislation, the Arbitration and Mediation Act, 2023 ("AMA").25 In any event, just as in the previous arbitration legislation and AMA, the grounds for refusal of recognition of a foreign arbitral award are a verbatim reproduction of Article V of the Convention. Instructively, one of the grounds upon which recognition or enforcement may be refused be it under the New York Convention or AMA "is where recognition or enforcement of the award would be contrary to the public policy of the enforcing country".26 Likewise, where the seat of the arbitration is in Nigeria, one of the grounds upon which an award may be set aside is where "the court finds that the "award is against the public policy of Nigeria".27

The critical question which then follows is whether agreements procured by corruption are contrary to public policy? If yes, will an arbitration pursued to enforce such agreement also be caught by the public policy defence during the enforcement stage. Also, will a party be deemed to have waived the right to refuse enforcement or challenge the award based on public policy if the corruption allegations were not raised during the arbitral proceedings.

To answer these posters, it will be useful to, as a preliminary point, understand what is meant by public policy. Indeed, international arbitration instruments like the New York Convention and United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985 (as amended in 2006) (the "Model Law"), do not define the term despite recognizing that it can be a ground upon which enforcement of arbitral award may be refused.28 That said, recourse may be had to definitions by the courts. The English Courts have opined that public policy defense covers cases in which "it has to be shown that there is some element of illegality or that the enforcement of the award would be clearly injurious to the public good or, possibly, that enforcement would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state are exercised."29

Similarly, in Parsons & Whittemore Overseas v. Société Générale de L&rsqrsquo;Industrie du Papier,30 the Second Circuit of the United States Court of Appeals held that the "enforcement of foreign arbitral awards may be denied on the basis of public policy only where enforcement would violate the forum state's most basic notions of morality and justice."

French international public policy is defined by French case law, as "all the rules and values that the French legal system cannot ignore, even in international matters." Indeed, earlier on, the French courts set a very high bar to set aside an award based on public policy. Specifically, the violation had to be "manifest" (or "flagrant", "effective" and "concrete"). Furthermore, judicial review was limited only to flagrant violations that could be identified simply by reading the award, with little inquiry by the reviewing court beyond the arbitration tribunal's own assessment.31 However, the Cour de cassation (French Supreme Civil Court) broke away from this pattern in, Belokon v. Kyrgyzstan ("Belokon"), in its decision of March 23, 2022, holding that when allegations of money-laundering are raised, the courts should engage in a complete review of all the facts and circumstances surrounding the alleged illegality, including the review of evidence not raised before the arbitration panel.32 Notably this approach was also adopted weeks later in GSSG's case by the PCA. Relying on evidence submitted before the tribunal and after the award,33 the PCA held that the evidence was sufficiently serious, specific, and consistent to taint the relevant tendering process and justify the annulment of the award on the basis that its recognition and enforcement would breach international public policy in a "characterized manner".

Against the foregoing definitions, the following have been held to be a breach of public policy, (i) violation of national sovereignty (ii) duress (iii) penalty (disproportionately high penalty) or damages (extremely high interest rate),34 (iv) violations of rules on consumer protection, (v) foreign exchange regulation or bans on exports (vi) violations of 'core constitutional values such as the separation of powers and sovereignty of Parliament and (vii) bribery and corruption etc.35

Public Policy Considerations in Nigeria: Illegal Contracts

A dominant theme when examining public policy considerations in Nigeria is the recurring view that illegal contracts are generally held to offend public policy principles. In Nwosu v APP36 the Nigeria Supreme Court clearly articulated the interconnectedness between illegality and public policy as follows:

"The law insists that a court should never allow itself to be used as a vehicle to enforce illegality. For the courts administer the law of the land and will not help a plaintiff who breaks it. This position of the law is founded on the principle of public policy and is expressed in the maxim ex turpi causa non oritur action, meaning that an action does not arise from a base cause".

In Macaulay v. FZB of Austria,37 the Court of Appeal held that public policy can be construed as the principles under which freedom of contract and private dealings is restricted by law for the good of the community. The essence of the foregoing is that illegal contracts are deemed to conflict with public policy considerations and as such unenforceable.

What then are illegal contracts? It suffices to surmise that Nigeria approaches illegal contracts from two broad standpoints. The first is that the courts will not enforce a contract that is expressly or impliedly prohibited by statute, whether such prohibition offends universal principles of common welfare or not.38 Majority of cases dealt by the court under this category include cases where there was breach of currency exchange laws, immigration laws etc. In some of these cases, the court simply refused to uphold the contracts even where one party appeared to have received benefit under the contract,39 while some were saved by procedural issues such as failure of the party relying on illegality to properly plead same.40

Secondly, a contract will be deemed to be illegal and of course unenforceable, if the consideration or the promise involves doing something illegal or if the intention of the parties in making the contract is to promote something which is illegal or contrary to public policy. An obvious example of the second category includes contracts tainted with bribery or corruption.41 In Golden Okoronkwo v P.O Nwoga42 a contractor bribed a public officer with a car and 7500 pounds on the understanding that the public officer would influence his being awarded a particularly lucrative government contract. When he failed to get the contract, the contractor reported to the police and additionally brought a claim for the recovery of the 7500 pounds and the car from the defendant. Counsel for the defence moved the court to dismiss the plaintiff's case on the ground that the cause of action disclosed in the statement of claim was illegal and unenforceable. It was held by Okagbue, J. that this being an agreement under which the plaintiff gave a bribe to the defendant for the purpose of defeating fellow contractors, it was a criminal act, illegal and contrary to public policy. The claim was therefore dismissed.

Based on the foregoing exposition, it is reasonable to infer that an award based on a contract tainted with corruption and bribery is unlikely to be enforced in Nigeria, where the respondent challenges same on the grounds of violation of public policy.

Also, the question whether a party who refused to raise the question of corruption before the tribunal can subsequently do so at the enforcement stage may be answered by saying that the appropriate place to raise the issue is before the Tribunal. As the GSS Arbitration and BSS Arbitration demonstrate, the tribunal has the jurisdiction to determine whether a claim ought to be admissible or rejected based on corruption claims. That said, it does appear that even where the question of corruption is not raised during the arbitral proceedings especially where for some reason say for instance corruption on the part of defending counsel or insufficient evidence despite due diligence at the time, the court may subsequently permit it to be raised during the enforcement stage provided there is strong compelling evidence of the corruption and cogent reasons as to why the issue was not raised before the tribunal.

Overall, it is safe to infer that the courts are alive to their role in denying recognition and enforcement to awards involving contracts procured by corruption especially because doing so may unwittingly endorse illegal activities perpetrated by the parties. Indeed the disposition of the French Cour de Cassation in the Belokon's case and ICSID Tribunal in the BSG Arbitration shows that the that the fight against corruption is considered part of international public policy and that a court or tribunal will not willingly ignore evidence which shows that corruption has occurred while enforcing an award or admitting a claim. If nothing else, the "more than a slap on the wrist approach" by the courts ought to serve as a deterrent to prevent parties (especially investors) from engaging in illicit practices involving the public sector and preserve the sanctity of international arbitration.

Conclusion

Awards which have their foundations in fraud and corruption are obviously against public policy and therefore unenforceable. The importance of this issue is the changing jurisprudence of non-interference by French courts in the recognition and enforcement of foreign awards to a more interventionist approach where there is compelling evidence that the underlying contract is tainted with corruption.

The damage to a nation's international reputation as well as the breach of ethical corporate codes by the company makes it a bad combination to seek enforcement of awards borne out of corrupt practices. Companies looking to invest in uncharted markets ought to do their due diligence and obey the laws of the host country, while governments as regulators should ensure fairness in business and contractual dealings.

The courts are encouraged to continue in their jurisprudence of refusing enforcement of awards or annulling awards where the underlying contract is tainted with corruption provided compelling and sufficient evidence of the corrupt practices is provided by the opposing party.

Footnotes

1 (11th Edition).
2 In simple terms, recognition may refer to the process by which the local court confirms the authenticity of the award and acceptance under the laws of the enforcing state. In fact, awards can be recognized without being enforced by the court. Examples would be where an award is recognized as giving rise to res judicata, issue estoppel, cause of action estoppel or set-off, or as a claim in an insolvent estate. See Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157. However, where a court is asked to enforce an award, it is asked not merely to recognize the legal force and effect of the award, but also to ensure that it is carried out by the award-debtor using such legal sanctions as are available. See Alan Redfern and Martin Hunter (1999), Law and Practice of International Commercial Arbitration, 6th ed., (Oxford University Press), at 11.22.
3 [2020] EWHC 2379.
4 ICC Case No. 21403/MCP/DDA, Judgment of the Paris Court of Appeal, 5 April 2022.
5 ICSID Case No. ARB/14/22, Award delivered on May 18, 2022.
6 Jonathan Bonnitcha 'Corruption and Confidentiality in Contract-Based ISDS: The case of P&ID v Nigeria: March 23 2021" Investment Treaty News accessed online on https://www.iisd.org/itn/en/2021/03/23/corruption-and-confidentiality-in-contract-based-isds-the-case-of-pid-v-nigeria-jonathan-bonnitcha/ on August 1, 2023.
7 Ibid
8 In January 2023, the English Court heard Nigeria's substantive application to set aside the award. Judgment is now reserved in the matter.
9 Spotlight on Corruption News- "Sham litigation or legitimate investor claims? The extraordinary case of P&ID v Nigeria" accessed online on https://www.spotlightcorruption.org/sham-litigation-or-legitimate-investor-claims-the-extraordinary-case-of-pid-v-nigeria/.
10 Case Comment: Gabon v. Santullo Sericom - Judgment of the Paris Court of Appeal, 5 April 2022: Federico Euforbio; Lucas De Ferrari available online: https://jusmundi.com/en/document/publication/en-gabon-v-santullo-sericom-judgment-of-the-paris-court-of-appeal-5-april-2022 accessed on March 19, 2023
11 Ibid
12 Craig Tevendale and Loiuse Barber- ICSID tribunal upholds the recoverability of success fees for counsel in BSG Resources v Guinea available online https://hsfnotes.com/arbitration/2022/10/04/icsid-tribunal-upholds-the-recoverability-of-success-fees-for-counsel-in-bsg-resources-v-guinea/ accessed on August 8, 2023
13 Ibid
14 Paragraph 859 and 946 of the Award
15 Paragraph 1083 of the Award
16 Global Corruption Index, https://www.transparency.org/en/cpi/2022 accessed August 1, 2023.
17 Dr Helen Taylor "Nigeria's bid to overturn a "sham" $11 billion arbitral award to P&ID available online on https://www.spotlightcorruption.org/nigeria-bid-to-overturn-arbitral-award/ accessed on August 8, 2023
18Ibid
19 Gyimah-Brempong, K. Corruption, economic growth, and income inequality in Africa. Econ Gov 3, 183–209 (2002).
20 Marie Chêne, "The Impact of Corruption on Growth and Inequality", Anti-Corruption Helpdesk, Transparency International. (2014).
21 Bo Rothstein and Soren Holberg. "Correlates of Corruption.", Working Paper Series, University of Gothenburg 2019.
22 Control Risks and Simmons & Simmons, "International Business Attitudes to Corruption: Survey 2006".
23 E. Ezike, "Lecture Notes on Law of Arbitration", LexisNexis 2013. A party seeking recognition and enforcement of the award, must at the minimum, provide to the court the original or certified copy of the award and the original or certified copy of the arbitration agreement See Article IV, of the Convention
24 Article 1.3, New York Convention
25 See Section 60 of AMA
26 Article V (2) b of New York Convention and Section 58(2) b of AMA.
27 Section 55(3) (b) ii of AMA
28 See Article V(2)(b) and Article 36(1)(b)(ii) of the New York Convention and Model Law respectively. Similarly, Article 34(2)(b)(ii) of the Model Law allows a party to challenge an arbitral award based on public policy.
29Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v. Ras Al Khaimah National Oil Co., Shell Int'l Petroleum Co. Ltd., Court of Appeal, 24 March 1987- Huseyin Alper Tosun "Public Policy Concepts in International Arbitration" 2019
30 508 F.2d 969, 974 (1974) (U.S.)
31 Alexander Blumrosen Polaris Law, GLI Global Insights, International Arbitration Laws and Regulation 2023 available online https://www.globallegalinsights.com/practice-areas/international-arbitration-laws-and-regulations/france
32 Ibid
33 Refer to summary on pg. 3 above.
34 Monique Sasson: "Public Policy: Is This Catch-All Provision Relevant to the Legitimacy of International Commercial Arbitration?" available online at https://arbitrationblog.kluwerarbitration.com/2022/06/18/public-policy-is-this-catch-all-provision-relevant-to-the-legitimacy-of-international-commercial-
arbitration/#:~:text=%5Bt%5Dhe%20expression%20%E2%80%9Cinternational,commercial%20arbitration%20when%20recognition%20or accessed on August 20 2023
35 Penny Madden KC, Ceyda Knoebel and Besma Grifat-Spackman: Arbitrability and Public Policy Challenges: Gibson Dunn & Crutcher LLP; available online https://globalarbitrationreview.com/guide/the-guide-challenging-and-enforcing-arbitration-awards/2nd-edition/article/arbitrability-and-public-policy-challenges accessed on August 20, 2023
36 (2020) 16 NWLR (Pt.1749) 28,
37 (1999) 4 NWLR (Pt. 600) 599
38 See Alao v. African Continental Bank Ltd (1998) LPELR-407(SC); Corporate Ideal Insurance Ltd v. Ajaokuta Steel Co. Ltd & Ors (2014) LPELR-22255(SC)
39 See for instance Pan Bisbilder Nig. Ltd v F.B.N Ltd 2000 1 NWLR (Pt. 642) 684
40 See for instance BATALHA v. WEST CONSTRUCTION CO LTD (2001) LPELR-9149(CA)
41 Golden Okoronkwo v P.O Nwoga 1972 E.C.S.L.R 615; SOYINKA v. ONI & ORS (2011) LPELR-4096(CA)
42 (Supra)

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