The UK Supreme Court has upheld a costs order issued in favour of Nigeria following its successful challenge to a US$11 billion arbitral award, finding no error in the judge’s decision to award costs in sterling rather than naira.
In a decision today, a five-judge bench refused the appeal by British Virgin Islands-based Process & Industrial Developments (P&ID), finding that costs should generally be paid in the currency in which a party was billed and has paid its bills.
It also did not accept that Nigeria had enjoyed “a large windfall” as a result of the currency decision. Nigeria is claiming £44 million in costs, while the costs order is for an interim payment of £20 million.
P&ID was represented in the latest appeal by Quinn Emanuel Urquhart & Sullivan. Nigeria used Mishcon de Reya.
Mr Justice Robin Knowles issued the costs order against P&ID in 2023 after he set aside the US$11 billion award on the grounds it had been procured by fraud. The award challenge had been the subject of an eight-week trial. He refused P&ID permission to appeal the set-aside decision.
P&ID argued that Knowles erred in ordering it to cover Nigeria’s legal fees in British sterling rather than Nigerian naira. It said Nigeria paid those bills after converting naira held in a consolidated fund, and so the order should have been in naira.
The value of the naira has fallen against sterling since Nigeria ceased pegging it to the US dollar in 2023. P&ID said that Nigeria’s legal bills at the time of payment had amounted to 25 billion naira, but that their value was now 95 billion naira. Nigeria said it had drawn on sterling-based funds.
The company posited that Nigeria’s costs should be compensated in the currency in which its loss could most accurately be valued.
The Court of Appeal in London dismissed P&ID’s appeal last year, finding that a costs order was not an indemnity designed to compensate for loss but an indemnity against the liability incurred by a party.
Upholding that decision today, the Supreme Court refused P&ID’s argument that there was no difference between Nigeria’s liability to its lawyers and its loss in paying them. Lord Hodge and Lady Simler (with whom Lords Reed, Stephens and Richards agreed) said that costs orders were not intended to give compensation in the same way as awards, in which the court must properly calculate a party’s loss.
They said that costs orders are discretionary remedies not automatically available, and that courts are entitled to consider all circumstances in making them. The court said a party’s source of funding to pay its bills to a law firm is not normally investigated by courts for the purposes of costs orders.
It added that such investigation might lead to further disputes, potentially encouraging disproportionate or expensive litigation.
The Supreme Court also noted Nigeria’s argument that it had paid the costs in 116 invoices over five years, and that if the currency were to be retroactively applied as naira, 116 different exchange rates would have to be applied.
While finding that English courts were not obliged to make costs orders only in sterling, the Supreme Court said there was a general rule that they should be in either sterling or the currency used to pay a party’s lawyers. If it became more common to issue costs orders in other currencies, the court advocated the creation of relevant practice directions.
Herbert Smith Freehills Kramer partner Hannah Ambrose tells GAR the decision is “a sensible one”, saying it is “grounded in an analysis of both the basis of the court’s discretion to order costs and the purpose of such an order, distinguishing a costs order firmly from a damages award”.
She adds: “It also reflects the pragmatic concerns which would arise if payment of costs in sterling or the currency in which they were paid was not the general rule.”
P&ID obtained the US$11 billion award in 2017 in relation to a gas processing plant that was never constructed. The London-seated ad hoc tribunal chaired by retired British judge Lord Hoffmann and including Sir Anthony Evans KC and Nigeria’s Chief Bayo Ojo SAN found Nigeria liable for repudiating a long-term contract.
Setting aside the award, Knowles found that it had been obtained through false evidence, corrupt payments and improper retention of leaked documents. He heavily criticised the conduct of P&ID and some of its lawyers, including its arbitration counsel Seamus Andrew (now of Velitor Law).
Earlier this year, the English Court of Appeal refused to allow Andrew – who stood to collect US$3 billion if P&ID’s claim against Nigeria had succeeded – to appeal adverse findings made against him by Knowles. Andrew had argued the findings were procedurally unfair and in breach of his human rights.
Last year, the BVI High Court allowed a Chinese company to attach funds payable by P&ID to Nigeria under Knowles’ costs order. This was in aid of the Chinese party’s bid to collect on a US$70 million investment treaty award against Nigeria, which the state agreed to settle earlier this year.
