Improper Negotiations : Why Endless Litigations Trail Many Contractual Agreements in Africa

The reasons why many contractual agreements with multinational organizations result in endless litigations came to the fore at a 2-day capacity building workshop for negotiations on Monday, June 28, 2021, in Abuja.

The workshop was organised by the Independent Corrupt Practices and Other Related Offences Commission (ICPC) in conjunction with the Inter-Agency Committee on Stopping Illicit Financial Flows (IFFs). The aim was to help the government and its  agencies improve its terms of engagement  as part of efforts to stem illicit financial flows.

Nigeria’s Vice President, Professor Yemi Osinbajo, at the workshop, based the incessant cases of poor contract negotiations in Nigeria on corruption, lack of transparency and other factors that currently bedevil our society.

Vice-President Osinbajo cited the Process and Industrial Developments (P&ID) case and the Strategic Alliance Contract case where Nigeria is at risk of losing billions of dollars due to poor and shrewd negotiations of the contracts.

Vice-President Yemi Osinbajo has disclosed that Nigeria lost over $3 billion to the Strategic Alliance contracts the Nigerian National Petroleum Corporation (NNPC) and various companies signed during the previous administration.

According to him, “The promoters of the companies made away with close to $3 billion, almost a tenth of our reserves.

 “In one single transaction a few weeks to the elections in 2015, the sums of N100 billion and $295 million were just frittered away by a few,” Osinbajo told a gathering of businessmen, government officials and journalists in at the Seventh Presidential Quarterly Business Forum for Private Sector stakeholders at the Presidential Villa, in Abuja.

He said that Guinea and Pakistan had equally suffered economic losses arising from poorly negotiated bilateral investment treaties, stressing that Nigeria had also been confronted with similar issues.

He identified some factors as being responsible for the lapses to include lack of knowledge of the specific subject matter, lack of accountability and corruption.

The Vice President pointed out that people must be held responsible for poorly negotiated contracts while transparency and due process must be encouraged.

Read Also: El-Rufai’s Zero-Negotiation Stand on Banditry: An Arduous Dilemma

Osinbajo called for proper negotiation by Nigeria in the ongoing discussion on climate change which he says should put into consideration Nigeria’s peculiar economic situation and needs of the citizens.He advocated that arbitrators that must be engaged should be experts in the subject matter in negotiating foreign contractual agreements.

He  also said that the rule of origin should also be considered, recommending that rules and guidelines for negotiations should be drafted with care and circumspect with regards to the country’s objective.

On his part, the Chairman of ICPC, Prof. Bolaji Owasanoye, while speaking on the “Guidelines for Negotiating International Agreements for Economic Development”, said that the essence of governance is development.

Owasanoye said that governance and development are mutually reinforcing, noting that negotiation of commercial agreements is linked to economic development as poorly negotiated agreements would affect development.

“Therefore, there is a strong nexus between the negotiation of agreements and attaining the aspiration to develop.

“The environment of negotiation for international agreements such as finance, trade, investments, environment, taxation is a mix of legal and political factors.

“Negotiators of developing countries often mistakenly assume that beneficial agreements can be concluded mainly by diplomatic, political, compassionate, human rights or other non-legal considerations alone.

In fact, Pakistan’s port of Gwadar on the Arabian Sea lost its unique strategic value to China, according to experts as it has turned over responsibility for development and management of the port at Gwadar to the Chinese until 2057.

Recall that in 2019, P&ID was awarded $6.6 billion in an arbitration decision against Nigeria by a UK arbitration court over a failed project to build a gas processing plant in the Southern Nigerian city of Calabar.

The ruling generated significant attention in both domestic and international media with the accumulated interest payments of about $9 billion, which amounts to 20 percent of Nigeria’s foreign reserves.

The firm initiated moves to identify the Nigerian assets that could be seized which might include the country’s oil cargoes.

This posed a significant threat to Nigeria’s economy and the Federal Government ina bid to overturn the judgment, filed an appeal through the office of the Attorney General of the Federation against the judgment, noting that the contract was awarded on illegal terms.

As a prelude, Ross Cranston, a judge of the Business and Property Courts of England and Wales, in the judgment delivered granted Nigeria’s application for an extension of time and relief from sanctions.

On January 31, 2017, a tribunal ruled that Nigeria should pay P&ID $6.6 billion as damages, as well as pre- and post-judgment interest at seven percent.

Nigeria was granted the right to appeal but asked to pay $200 million in the meantime. The judgment caused a stir in Nigeria, given that the sum is over 20 percent of both the country’s reserves and the value of its annual exports.

“The contract was designed to fail right from inception,” said Nigeria’s current justice minister, Abubakar Malami.

The government decided to brave it and essentially accused international parties of trying to scam the country while the Economic and Financial Crimes Commission (EFCC) expanded its probe into the initial deal by seeking assistance from Irish and U.K. law enforcement.

The EFCC, on August 18, eventually arraigned James Nolan, a Briton, and six companies over their alleged involvement in the contract.

The P&ID case is an archetypal Nigerian saga of broken promises, scheming individuals, and an inept government.

For decades, oil companies simply flared the gas that escaped when they excavated crude oil from oilfields, resulting in an environmental and health crisis in the Niger Delta.

International oil companies (IOCs) when the proposal was laid were sceptical about investing in the infrastructure required to capture, transport and refine the gas.

 Instead, thirteen small and virtually unknown companies among one of these was P&ID were finally granted concessions for the project.

On paper, P&ID was an engineering and project management company. Its founders and principals, Michael Quinn and Brendan Cahill, both Irishmen, claimed to have over 60 years of combined experience of project management and execution in Nigeria.

In reality, P&ID was a shell company registered in the British Virgin Islands in 2006 with no operational history.Later that year, Mr Quinn registered another company with the same name in Nigeria without a parent-subsidiary arrangement. But the firm that signed the agreement was the P&ID of BVII.

Nigeria was later going to state, during the arbitration, that the agreement was null and void as the P&ID BVI was not registered in Nigeria and by the country’s law could not conduct business in Nigeria.

Meanwhile, the agreement was said to have been signed when the late president was battling for his life in Saudi Arabia.

 Quinn, in his written statement said the proposal was sent in August 2008 for the late president’s endorsement and that helped facilitate further steps leading to the signing of the agreement in January 2010.

Now, Messrs Yar’Adua, Lukman, and Quinn are deceased.

Recalled also that in 2001, Quinn was involved in a failed contract to repair and upgrade 36 British-made scorpion tanks in Nigeria.

 Quinn was eventually charged with espionage and handling secret military materials in 2006, but the case was dropped within the year amid claims from some prosecution lawyers that the government had intervened.

Another notable case is an Air Force repair contract that the Nigerian Air Force reneged on within months. The issue was taken to a Nigerian arbitration panel which ruled in Quinn’s favour. But the Air Force never paid up, leaving Quinn and his partners upset.

Curiously, the government seemed to have underestimated P&ID and the possibility of losing the case just as it defaults on contracts with domestic counterparties all the time, usually with no consequence.

The government decided to take all necessary diplomatic, legal means and secured an Abuja Court ruling permitting them to seize P&ID’s local assets. The EFCC then arraigned two P&ID directors, James Nolan and Richard Quinn in court.

The UK Court finally held that: (i) Nigeria had established a strong prima facie case that a gas processing agreement between Nigeria and P&ID (the “GSPA”), the arbitration clause in the GSPA, and the Final Award had been obtained through fraud; and (ii) Nigeria’s conduct in relation to investigating the fraud in the intervening period between the Final Award and the current proceedings had been reasonable.

To put a stop to the impunity therefore in contract agreement abuse in Nigeria, all failed contractors, along with their civil servant colluders must be robustly pursued and brought to book.

In the light of the above, the Federal Government should embark on forensic audits of all pending contract agreements awarded in the last 20 years to test their veracities.

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