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You are here: Home / Arbitration / Court Decisions / Confirmation / Vacation of Arbitration Awards / COURT FINDS THAT ENRON’S FRAUD DOES NOT VOID CONTRACT ENTERED INTO WITH ENRON SUBSIDIARY

COURT FINDS THAT ENRON’S FRAUD DOES NOT VOID CONTRACT ENTERED INTO WITH ENRON SUBSIDIARY

January 17, 2017 by Rob DiUbaldo

A federal appellate court has upheld a district court order enforcing an arbitration award by the ICC against the Republic of Nigeria in favor of Enron Nigeria Power Holdings, Ltd. (“ENPH”), a former subsidiary of Enron International Corporation (“Enron”), for breach of a contract. Nigeria claimed that enforcing the contract was against public policy due to that fraud that became apparent when Enron collapsed in 2001. However, the court rejected this argument, noting that Enron was not a party to or mentioned in this contract.

The operative contract, agreed to in 1999, contemplated ENPH engaging in three phases of construction, but the dispute was limited to the second phase under which ENPH was to have built a power plant in Nigeria. ENPH made various efforts through 2005 to get Nigeria to move forward with the second phase of the contract, but Nigeria refused to do so, leading ENPH to take the matter to arbitration with the ICC.

Nigeria argued that the contract was void as against public policy because of false statements regarding Enron’s financial attributes made to Nigeria in order to induce Nigeria to enter the contract. The ICC found no clear evidence that these statements induced Nigeria to enter the contract, emphasizing that the contract contained no express or implied guarantees from Enron, which was not a party to nor required to do anything under the contract. Further, the ICC found that Enron’s accounting fraud had no connection to ENPH nor to the second phase of the contract. When Nigeria refuse to pay ENPH, ENPH successfully sought enforcement in federal court. On appeal, the court upheld the order granting enforcement of the award, noting the deference due to both the factual determinations and interpretations of the contract made by the ICC.

Despite finding in ENPH’s favor, the court rejected three arguments advanced by ENPH. First, ENPH argued that Nigeria had failed to identify a well-defined public policy, but the court found that enforcing a contract tainted by fraud was plainly against public policy. Second, ENPH argued that Nigeria contractually waived any right to challenge the award anywhere except London, where the arbitration was held, but the court found that a party cannot waive such a public policy argument, as that would effectively “elevat[e] the parties’ contractual choices above the fundamental need of the federal courts to protect their own integrity.” Third, the court rejected the argument that Nigeria forfeited the argument that ENPH should be held responsible for Enron’s fraud as its alter ego by not properly raising it before the district court, finding that a party cannot waive this sort of public policy argument that courts are bound to decide.

Enron Nigeria Power Holding, Ltd. v. Federal Republic of Nigeria, No. 15-7121 (D.C. Cir. Dec. 27, 2016)

This post written by Jason Brost.

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Filed Under: Confirmation / Vacation of Arbitration Awards, Week's Best Posts

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