Nigeria loses $1.7 bn suit against JPMorgan Chase

Sopuruchi Onwuka

Federal government has lost its case seeking princely $1.7 billion claims from New York based American multinational investment bank and financial services holding company, JPMorgan Chase.

The claims sought by government included some hundreds of million dollars paid in three installments in 2011 and 2013 to Malabu Oil and Gas for full acquisition of its operating license in deepwater Oil Prospecting Lease (OPL) 245 acreage. And the damages Nigeria sought were the accruing interest on the money.

Malabu Oil is owned by former Petroleum Minister, Dan Etete.

The Oracle Today reports that a London High Court dismissed the $1.7 billion suit in which Nigeria demanded a refund of initial $1.3 billion Shell and Eni paid to Malabu Oil, and additional $400 million in interests and damages.

Nigeria had based its claims against the bank on the technicality that JPMorgan Chase neglected its Quincecare obligation on which, according to the government’s lawyers, the bank would have stalled the asset divestment transaction on the grounds of corrupt practices.

But Justice Sara Cockerill of London High Court who delivered a 137-page ruling issued on Tuesday determined that the bank did not breach the Quincecare provision in the discharge of its functions role in the divestment transaction in 2011.

The Oracle Today reports that the case involves the federal government, a number of investors, consultants and banks linked in the divestment of OPL 245 which has been determined to hold proven petroleum liquids reserves of about a billion barrels of stock oil originally in place. The Zabazaba oilfield which hosts the discovered oil had already been approved for development by Eni before government went to court.

The loud hullabaloo   made by whistle blowers, government and accountability groups in the country and abroad has prompted the Italian government to launch investigation and legal enquiry into the deal.

The arguments

The allegations were that the two European oil giants which have remained operating partners in a number of oil and gas projects in Nigeria had dealt dubiously with government in their acquisition of the petroleum assets from the original license owner.

Foreign legal enquiries and government’s claims were based on the allegation that nearly $450 million of the declared acquisition sum of $1.3 billion were paid to government officials and middle men as bribes.

Government’s team from Ministries of Justice and Petroleum Resources respectively had alleged that JPMorgan was reckless in facilitating payment for the acquisition to a company linked to Dan Etete’s Malabu Oil as authorized by government officials.

The government of President Muhammadu Buhari and the former Minister of State for Petroleum Resources, Dr Ibe Kachikwu, had accused their predecessors of corruption and alleged that the divestment of OPL 245 was part of a fraudulent scheme.

Thus, Nigeria’s legal argument has been that JPMorgan should have stalled the transaction on the understanding that the deal was fraudulent.

Government of Nigeria stated that the bank breached its Quincecare duty by facilitating the payment process, arguing that it had the opportunity to disregard a customer’s instructions on the grounds that the payment might facilitate a fraud.

In its defence, JP Morgan rejected the legal argument of Nigeria and emphasized its primary duty to comply promptly with payment instructions from its customer. The bank also contested some of the factual elements put forward by Nigeria, according to court sources.

JPMorgan said the judgment reflected its commitment to acting with high professional standards everywhere it operates, while Nigeria said it was disappointed and would review the judgment carefully before considering its next steps.

The bank declared that the outcome reflected “how we are prepared to robustly defend our actions and reputation when they are called into question”.

The crisis

As it was fashionable under the military regimes that held down Nigeria since 1984 when General Muhammadu Buhari truncated the country’s thriving democracy, the military government of General Sani Abacha had discretionarily awarded the deepwater oil block to Dan Etete’s oil firm in 1998.

Similar discretionary deepwater oil block awards had earlier been given General Theophilus Danjuma, and Ms Folunsho Alakija by preceding military government of General Ibrahim Babangida.

Whereas General Danjuma’s South Atlantic Petroleum (Sapetro) partnered Total in operating the license and exploiting the resources under a production agreement with government, Ms Alakija’s Famfa Oil partnered Chevron which also operates the license under a production contract with government.

Thus, the award of OPL 245 to Dan Etete fell into the normal process of time. And also in line with the norm of the time, Malabu partnered Shell and made significant discoveries in operating the license.

The democratic government of President Olusegun Obasanjo which came into power in 1999 later reviewed that award and transferred the license to Shell, sparking off a fight for control of the asset by the two partners.

The dispute over operating rights to the oil block simmered for years until government of President Goodluck Jonathan stepped in to broker a proper farm out deal to Shell and Eni in 2011; but unfortunately, the government’s intervention came with allegations of sharp practices in the transaction in Nigeria and legal action in Italy.

Prosecutors alleged that significant portion of the farm in payment was diverted to politicians and middlemen, raising ethical questions for Eni and Shell.

However, the Italian enquiry ultimately dismissed the two companies, saying they did not have any case to answer and acquitted the companies and all other defendants.