P&ID is an engineering and project management company registered at Trident Chambers, P.O. Box 146, Road Town, Tortola, in the British Virgin Islands. It was represented by SC A ONTIER LLP of One New Ludgate, 60 Ludgate Hill London EC4M 7 AW:
Contact: Mr Seamus Andrew
Telephone +44(0) 20 7183 1701
The Government is the Ministry of Petroleum Resources of the Federal Government of the Federal Republic of Nigeria whose office address is 11th Floor, Block D, NNPC Towers, Herbert Macaulay Way, Central Business District, Abuja, Nigeria. It was represented by Chief Bolaji Ayorinde SAN, FCIArb, OFR of B. Ayorinde & Co, Adebayo Chambers, 136 Awolowo Road, Ikoyi, Lagos, Nigeria.
Contact: Chief Bolaji Ayorinde SAN, FCIArb, OFR
Clause 20 of the GSPA, so far as relevant, provides:
"The Agreement shall be governed by, and construed in accordance with the laws of the Federal Republic of Nigeria.
The Parties agree that if any difference or dispute arises between them concerning the interpretation or performance of this Agreement and if they fail to settle such difference or dispute amicably, then a Party may serve on the other a notice of arbitration under the rules of the Nigerian Arbitration and Conciliation Act (Cap A18 LFN 2004) which, except as otherwise provided herein, shall apply to any dispute between such Parties under this Agreement. Within thirty (30) days of the notice of arbitration being issued by the initiating Party, the Parties shall each appoint an arbitrator and the arbitrators thus appointed by the Parties shall within fifteen (15) days from the date the last arbitrator was appointed, appoint a third arbitrator to complete the tribunal...
The arbitration award shall be final and binding upon the Parties. The award shall be delivered within two months after the appointment of the third arbitrator or within such extended period as may be agreed by the Parties. The costs of the arbitration shall be borne equally by the Parties. Each party shall, however, bear its own lawyers’ fees.
The venue of the arbitration shall be London, England or otherwise as agreed by the Parties. The arbitration proceedings and record shall be in the English language..."
Before considering the quantification of the Government’s liability, it is necessary to be clear about the findings made by the Tribunal in its second Partial Final Award. The evidence for P&ID at that stage consisted of a statement by Mr Michael Quinn dated 10 February 2014, the then chairman of P&ID, who died before the hearing on 1 June 2015. He gave account of what had happened after the signature of the GSPA:
"102. The day after the signing of the GSPA, on 12 January 2010, I wrote to the Minister on behalf of P&ID to inform him that P&ID wished to commence work at once...
103. I was keen to implement the GSPA as soon as possible...I wished to minimise any delay which might be caused by the operators of the 2 concessions that had been identified as likely sources of Wet Gas for the project. P&ID required from the Government certain up to date information which would be critical to the construction of the gas processing facility which P&ID would be building in Calabar to strip the Wet Gas. For instance, the precise make-up of the Wet Gas (which was also relevant to the Government's contractual obligations to supply Wet Gas with a minimum propane and butane content) and the pressure at which it would be delivered into the gas pipeline which would transport it to Calabar...
109. In the meantime, the site for the onshore plant at Calabar for the construction of the gas stripping plant and gas storage facilities had been selected by P&ID and secured from the Government of Cross River State. On 1 February 2010 Mr Hitchcock wrote to the Governor of Calabar requesting the formal allocation of the land upon which the plant would be constructed...On 16 February 2010 approval was granted, by the Government of Cross River State, to P&ID, for the allocation of Parcels 1 & 2 of the Energy City (Industrial) at Adiabo in Odukpani Local Government Area, containing an area of about 50,662 hectares of land, for the industrial use of P&ID.
110. On 14 May 2010, I wrote to NNPC to update it on the progress made by P&ID. I pointed out that all of the project finance was in place, 90% of the engineering designs had been completed, a 50 hectare site had been allocated to P&ID by the Cross Rivers State Government, and that Addax Petroleum had confirmed to the DPR its readiness to supply to P&ID the Wet Gas that it was at that time flaring in OML 123 in time for Phase 1 of the Project as set out in the GSPA. I asked the Group Managing Director of NNPC to authorise NAPIMS to oversee and conclude the necessary arrangements between P&ID and Addax, by which I meant the engineering logistics of delivery of the Wet Gas for Phase 1 from Addax, to enable work to proceed on the gas processing facility."
The Government did not thereafter do anything to comply with its obligation under Article 6 b) of the GSPA to -
"ensure that all necessary pipelines and associated infrastructures are installed and all requisite arrangements with agencies and/or third party are in place to ensure that supply and delivery of Wet Gas in accordance with Article 3 so as to facilitate the timely implementation of gas processing by the GPFs [gas processing facilities to be constructed by P&ID] as provided for in this Agreement."
The Tribunal’s finding on this point was that the Governments obligations under Article 6 b) were not conditional upon P&ID having constructed the GPFs:2
"It would have been commercially absurd for P&ID to go to the expense of building GPFs when the Government had done nothing to make arrangements for the supply of the Wet Gas."
Second Part Final Award paragraph 64.
Mr Shashore also advanced a modified version of this argument, saying that P&ID should at least have acquired a site so as to enable the Government to identify the "site boundary" to which the Wet Gas should be delivered. The Tribunal said that this took the matter no further than the first version of the argument:3
"Of course the Government could not actually deliver gas until there was a Site and, as we have said, until there was a plant to receive it. But that does not excuse the Government’s failure to comply with 6 b). There is no suggestion that its failure to comply with these obligations was caused by uncertainty as to where the Site was going to be. It was assumed by everyone that it would be on the land allocated in Calabar."
The damage suffered by P&ID is the loss of the net income it would have received if it had been supplied with wet gas in accordance with the contract and had been able to extract and sell the natural gas liquids. The first question is whether this kind of loss is in principle recoverable or whether it is too remote. The parties are agreed5 that the general rule for answering this question is that formulated by Alderson B in Hadley v Baxendale:6
"[T]he damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.
Claimant’s written submissions of 22 August 2016, paragraph 18.2; Government’s written submissions of 24 August 2016, paragraph 1.2.
(1854) 9 Ex. 341,
The Government submitted that the loss of income from sale of the natural gas liquids could not be considered to arise naturally from its repudiation of the contract because at that time P&ID had not acquired a site or constructed the GPFs. The point is put with great clarity at the outset of its written submissions:
"In order to put the Claimant’s argument in the right perspective, it is important to consider this pertinent question which flows from the Claimant’s position above. Can the damages in the sum of $8,627 billion dollars as claimed by the Claimant be regarded as a fair, reasonable and natural consequence of the Respondent’s breach? We shall answer in the negative. This is based on the premise that it is not natural and in the usual course of things for the Claimant to make such profit without taking any steps towards the actualization of the contract such as building a gas facility or purchasing the land allotted to it."
(D) repudiates a contract, the other party (C) is entitled to accept the repudiation and sue for damages. The measure of damages is the sum required to put C in the position in which he would have been if D had performed his obligations under the contract. For this purpose it is necessary to consider not only what D was obliged to do, but also whether C would have performed his obligations under the contract. If he would not have been able to do so, he may not be able to recover more than nominal damages for the repudiation. But the question is whether he would have performed his obligations, not whether he had already done so before the repudiation. The Tribunal must decide this according to the evidence, the burden being upon the claimant. What would have happened is of course a hypothetical question but courts and tribunals frequently have to make such decisions.
These principles are clearly established in the laws of both Nigeria and England. In Tanko v Kaduna North Local Government the Nigerian Court of Appeal said:
"In the resolution of this issue on the assessment of damages, it is very important to note that it is a fundamental principle of our law on damages that in the event of a breach of any contract, the Plaintiff is entitled to be placed, so far as money can do it, in the same position as he would have been in, had the contract been performed. See: ROBINSON V. HARMAN (1848) 1 EX.850, 855 AND PIEDMOUNT PLYWOODS V. GOLDEAC (NIG) LTD (1992) 8 NWLR (PT. 260) 481 AT 491."
The reference to Robinson v Harman was to the well-known statement by Parke B:
"The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed."
In Flame SA v Glory Wealth Shipping PTE Ltd8 there was a question as to whether the innocent party would have performed his obligations, Teare J summarized the law:
"The assessment of loss necessarily requires a hypothetical exercise to be undertaken, namely, an assessment of what would have happened had there been no repudiation. That enables the true value of the rights which have been lost to be assessed. The innocent party is claiming damages and therefore the burden lies on that party to prove its loss. That requires it to show that, had there been no repudiation, the innocent party would have been able to perform his obligations under the contract. [But]...when assessing what the innocent party would have earned had the contract been performed the court must assume that the party in breach has performed his obligations."
 QB 1080 at paragraph 85.
In some cases the fact that a party had not done anything by way of performance of the contract for three years, as in the present case, might be evidence that it was unable or did not intend to do so. But that is not the case here. There was an obvious reason why P&ID had not started upon performance. As the Tribunal said in its second Part Final Award -
"It would have been commercially absurd for P&ID to go to the expense of building GPFs when the Government had done nothing to make arrangements for the supply of the Wet Gas."
In fact, the evidence shows a high degree of likelihood that if the Government had been willing to perform, P&ID would have acquired the site and built the plant. First, P&ID was fully prepared to acquire the land and start constructing the plant. Mr Quinn says in his witness statement that, starting in 2006, P&ID -
"... set about the necessary preparatory engineering work required to construct a gas stripping plant capable of processing 400 MMSCuFD of Wet Gas and a polymer grade propylene plant capable of producing 250,000 metric tonnes per annum of polymer grade propylene.... During the course of the next two years, we made good progress and reached a very advanced stage of the preparatory engineering work necessary to implement such a project on the ground. I would estimate that the total costs sunk into the preparatory work during that period were in excess of $40 million...  By the end of the first 2 years of our work on the Project, we had put together a completed engineering package ready for actual permit applications, procurement and construction... The day after the signing of the GSPA, on12 January 2010, I wrote to the Minister on behalf of P&ID to inform him that P&ID wished to commence work at once...[l 10] On 14 May 2010, I wrote to NNPC to update it on the progress made by P&ID. I pointed out that all of the project finance was in place, 90% of the engineering designs had been completed [and] a 50 hectare site had been allocated to P&ID by the Cross Rivers State Government..."
Upstream Commercial Advisory Limited ("Upstream"), the Government’s expert witnesses, do not appear to have been shown Mr Quinn’s evidence. Under the heading "Readiness Status of P&ID" they say that -
"P&ID made an investment decision based on a Class 5 estimate. This is flawed because a Class 5 estimate classification is based on two percent (2%) detail definition of the proposed project with just a notional sense of engineering deliverables. A Class 3 estimate is indeed required for Final Investment Decision... There’s no mention of a detailed EPC schedule in the cost estimates."10
ACEE International, an international association of cost engineers, divides cost estimates in to five classes according to their degree of detail, purpose, expected accuracy and preparation effort. Class 1 is at the greatest level of detail, used to check a bid or tender. Class 5 is at the most general level and is intended for a first appraisal of a project: see AACE International Recommended Practice No 18R-97.
It is true that, as the Tribunal will in due course explain, P&ID’s expert witness Mr Wolf had made his own Class 5 estimate by way of a check on the three earlier estimates with which he had been provided. But P&ID itself had gone a good deal further. Besides the uncontested evidence extracted in paragraph 50 above, Mr Quin had said:
" By way of example, extensive work was commissioned from various specialist engineering companies such as CB&I Lummus Technology Group in New Jersey, KRAN Developments in Johannesburg and ABB Limited in the UK. The cost of the work of these three companies alone was about $29 million. In addition our own internal costs were significant...  By the end of the first two years of our work on the Project, we had put together a complete engineering package ready for actual permit applications, together with a 3-D software model of the plant which was in such high detail that it would have enabled training of the plant staff even before completion of construction."
Based on these materials, Mr Wolf made a calculation of the probable cost, which he tested by reference to a Class 5 estimate of his own and "bench marked", i.e. compared it, with information about similar plant which had been built elsewhere. He observed in his report:
"It is important to note that this was not by any means a unique project whose costs would consequently be very difficult to predict. The project described in the GSPA was typical of many others in gas rich regions of the world. There was nothing in the project scope, cost or timetable that was any different [from] many other such projects routinely completed around the world."
There is nothing to show that Mr Wolf failed to take account of local conditions in calculating CAPEX, nor was it put to him in cross-examination that he had not done so. Most of the components of the plant would have been imported and their prices were unaffected by local conditions, but labour costs were based on Nigerian rates.19
Second BRG Report, paras 2.6.5-7.
The Upstream report contains no comment upon the equipment which Mr Wolf considered would be needed or any specifics of his estimate. Nor was anything of the kind put to him in cross-examination. Counsel for the Government appeared to be satisfied with his admission that he had found the P&ID materials "extremely helpful".24 He was asked whether he had subjected the third party studies to an audit. He replied that he had -
"compared the values that were presented with other ones that I have personal knowledge of or are in the public domain. So from a reasonableness standpoint, these values certainly, within my experience, I had no reason to question them."25
Transcript Day 1, 30 August 2016, pp. 8-9.
Transcript Day 1, 30 August 2016, p. 11.
Finally, Mr Wolf was asked whether his estimates were "founded on assumptions". He replied:
"My job is to make sure they are reasonable assumptions and reflective of what...it would have cost to build a plant that would have achieved what was outlined in the facility, but all estimates are based on assumptions."
The Upstream Report makes no comments upon any of the six individual heads of expenditure but simply recommends that OPEX should be based on "2.5% of CAPEX with uplift of +25% to capture Niger Delta security arrangements". This produced a figure lower than Mr Wolfs estimate, but Upsteam produced an addendum in which they increased Mr Wolfs figure by 25%. Asked in cross-examination for the justification for this increase, Mr Dare said:31
"It did not factor in Niger Delta adjustments, it did not factor in the fact that you have Nigeria content development requirements, all of that is a way of making operations more expensive."
Transcript Day 1, 30 August 2016, p. 106.
Mr Wolf commented in his second report:
"[2.6.3] The OPEX costs in our First Report were derived from a compilation of detailed information developed for this plant by P&ID, Genesis and the Wood Group. These studies described that the OPEX was based on information from similar projects and lease costs obtained after preliminary bids were tendered and would already have included any extra security precautions deemed prudent.
[2.6.4] Since the facility capital costs included security fencing around its defined perimeter and guarded entrances as part of the infrastructure and the OPEX estimates already considered the location, I believe that no specific additional uplifts to OPEX costs for "Niger Delta security arrangements" especially since the risk of disruption, to the extent that it exists, is likely more prevalent to the incoming pipeline which in this case is the responsibility of the respondent."
The comment in the Second BRG Report by Mr Melting was:
3.6.2 I am aware of course of the problem of militant attacks on oil and gas infrastructure in the Niger Delta, which have a variety of reasons. However it is my understanding that this problem manifests itself in the West and North West of the Niger delta region rather than the South East, where Calabar is located. This is borne out by material in the public domain.
3.6.3 The E1A state that this militant group is the most active in the region. Appended to this report is a map plotting the locations of all of the attacks by the Niger Delta Avengers reported by the online publication "Ventures Africa" in 2016.6 This map indicates that militant attacks are focused around Warri and to a lesser extent around Brass, at the mouth of the Niger Delta. Calabar is hundreds of kilometres to the East of this region.
3.6.4 Nigerian Oil Spill Monitor provide a map of spills in the Niger Delta area, indicating where they are caused by third parties.7 Almost all spills caused by third parties are found to the west of Calabar.
3.6.5 My conclusion is further supported by the 2015 Annual Report of Seven Energy, the leading integrated gas company in south east Nigeria. Seven Energy has operations in 3 locations in the Niger Delta - in the North West (around Warn), in the Anambra Basin, and in the South East, in an area encompassing Port Harcourt and Calabar.
3.6.6 The Seven Energy Annual Report specifically discloses the militancy affecting operations in the North West Delta - see page 13 - referring to "considerable interruption due to sabotage and damage caused to the Trans Forcados Pipeline". (The Trans Forcados pipeline is a crude oil pipeline in the North West Niger Delta which was bombed in February 2016). However, in the Operational Report for the South East Delta region (pp 34-37 of the Seven Energy Annual Report) no mention is made of any operational interruption due to militancy.
3.6.7 1 further note that according to its 2015 Annual Report Seven Energy is actively supplying lean gas to power plants in the Calabar region. A more recent update reporting on the first quarter of 2016 states: "During the first quarter of 2016, Seven Energy gas deliveries in the south east Niger Delta averaged 101 MMcfpd (QI 2015: 44 MMcfpd). The 44% increase from the 2015 average gas deliveries of 70 MMcfpd was due to the increase in gas taken by the Calabar NIPP and Alaoji NIPP power stations as they increase their electricity generation into the power grid."
3.6.8 Finally, the US Department of Energy, Energy Information Agency provide data that can be used to give a rough estimate of the level of disruption to Nigerian oil production due to militancy. Their data shows that, prior to 2016, approximately 13% of oil production was not achieved due to militancy. Only in 2016 did increasing militancy cause greater disruption, with disruption increasing to approximately 32%. This is not analogous to the outages that one might expect in a single NGL facility in an area relatively unaffected by militancy, but it shows that an assumption of 50% downtime due to militancy over the life of a project from 2015 onwards is wholly unrealistic (even for the part of the industry most effected by attacks).
3.6.9 In summary, I am not aware of any sensible foundation to support the assumption that the P&ID plant would have suffered 50% downtime, as suggested by Upstream. As stated above, I believe that my uptime assumption of 93% is realistic.
The Tribunal considers that the correct approach is to take into account all the information available at the hearing. This is the trend of recent decisions of the English courts on questions which involve predictions: see The Golden Victory37 and Bunge SA v Nidera BV38. Mr Ede says of his 2015 calculation of the loss suffered by P&ID by the 2013 repudiation:
"I take the actual 2015 prices...I assume that the price fall of 2014-15 is completely foreseen and future expectations...about long term oil prices [at the hearing date] are similarly known."
 2 AC 353
 Bus LR 987.
The only estimates of what might happen to oil prices that the Tribunal has actually seen are those in the IEA report relied upon by Mr Ede. IEA, says Mr Ede -
"is an intergovernmental organization that provides reporting and analysis on international energy markets. Included in their work is analysis of future trends and developments in the oil and gas industries and as such they regularly publish forecasts of prices for these commodities. Companies operating in the oil and gas industries regularly make use of IEA forecasts when benchmarking price forecasts and analysis. I believe that this is...reasonable."
Clause 20 of the GSPA provides that the parties are to bear the costs of the arbitration equally but that each party is to bear its own lawyer’s fees. There has been no application by either side in respect of the costs of the arbitration and the Tribunal assumes that they have been borne equally.