Case of the Day: Enron Nigeria Power Holding v. Nigeria
Posted on January 9, 2017
The case of the day is Enron Nigeria Power Holding, Ltd. v. Federal Republic of Nigeria (D.C. Cir. 2016). Nigeria was party to a contract for construction of electrical facilities with ENPH. The contract was made in 1999, but almost immediately thereafter Nigeria suspended implementation, after it received a letter from the World Bank criticizing the economics of the contract. Soon thereafter, the Nigerian attorney general opined that the contract was invalid under Nigerian law. Although Enron sought Chapter 11 bankruptcy protection in 2011, ENPH informed Nigeria at the time of the bankruptcy that it was able to perform its obligations under the contract. After years of trying to renegotiate, ENPH demanded an arbitration by the ICC’s International Court of Arbitration, in London. The ICC entered an award in favor of ENPH, and ENPH sought confirmation in Washington. The district court confirmed the award, and Nigeria appealed.
The argument was that the contract was tainted by fraud and therefore, enforcement should have been denied under Article V(2)(b) of the New York Convention in light of the public policy that “no one shall be permitted to profit by his own fraud, or to take of his own wrong, or to found any claim upon his own iniquity or to acquire property by his own crime” (quoting Riggs v. Palmer, 115 N.Y. 506 (1889), and Stone v. Freeman, 298 N.Y. 268 (1948)). Among the bases for the claim of fraud: Nigeria argued that Enron made false statements about its financial condition and technical abilities that fraudulently induced Nigeria to enter the contract. The tribunal had rejected this claim on various substantive grounds.
The first holding was that the public policy Nigeria cited was indeed a well-defined public policy that could be considered in the context of Article V. This seems easy enough: there is a fundamental rule of equity that a person should not benefit from his own fraud.
Next: the court held that Nigeria had not waived its argument by agreeing, in the contract, that the award “shall be final and binding on all parties” and by expressly waiving, to the extent permitted by law, “any right to challenge an award by the arbitrators anywhere outside the place of arbitration agreed herein.” The court held that grounds for non-recognition under Article V(2)(b) are not waivable, because “public policy violations implicate the integrity of the enforcing court.” The rule is different for procedural defenses under Article V(1).
But despite these victories on threshold issues, Nigeria lost the appeal. On the merits, the court agreed with the substantive grounds for dismissing the fraud claim that both the tribunal and the district court had used to reach their results. Interestingly, the court seems to regard the tribunal’s reasoning as persuasive but not in any sense controlling. If the issue of fraud in the inducement were arguable, then it seems to me that a court should defer to the tribunal if possible. Just because there is a public policy that no one should benefit from his own fraud does not mean that issues of fraud, once fully litigated, can be relitigated again forever just because they involve fraud as opposed to some other basis for avoiding a contract.